A 720p movie can be encoded with MPG4 to a filesize of about 4.3 gb with very little quality loss. 1080p is overkill for a computer monitor, you'd need a 50+" HDTV to see the difference between 720p and 1080p, and even then it's small.
Encoding a film to MPG4 720p wouldn't take long on a small cluster of machines. On my Core2 Duo it takes about 1 hour per 15 minutes of film, but spread that work out over 20 machines and you're looking at maybe 10 minutes to encode an entire film.
The biggest problem for a central server cluster is the sheer bandwidth needed to stream 4+ GB files. It's not impossible, Stage6 gets 25,000 new videos per week with filesizes up to 2 GB, but once you get a few million people using the service I doubt any connection will be able to handle the bandwidth. The only reasonable way to do it is to spread the bandwidth out over millions of computers, which is exactly what Bittorrent and other P2P systems do. You lose control over your content, but that can't be avoided anymore.
Hollywood will have to adapt to this, and if they can't then they need to move over to make room for people who can. Trying to destroy P2P isn't going to work, there's already an improved version of BitTorrent ready if/when they succeed in killing BitTorrent off (I doubt it). And the new version, Freenet, is completely anonymous with no need for trackers and no way to know which files a person is sharing, who requested a file or who uploaded a file.
Point being, P2P networks are here to stay, and so is pirating content. As long as you allow content to be played on an electronic device of any sort you will have pirating, that's just the way it is.