First of all, when talking about HD material, it helps not to call them "DVD". There are two formats to choose from: Blu-Ray, and HD-DVD.
Now, I'll try to answer your questions
1) Blu-Ray has more exclusive studios, meaning that although for the most part you'll find the same movies in both formats, Blu-Ray will have more movies that are exclusive. Blu-Ray has Walt Disney Pictures, MGM/20th Century Fox, and of course Sony Pictures. This covers a lot of movies! HD-DVD's only exclusive studio is Universal...
2) Probably not... If you really want to play both formats, buy both an XBOX 360 w/ HD-DVD attachment AND a PS3. All these will still be cheaper than the LG (which is in the HKD $10,000 range), plus you'll have two really good video game systems
3) If you're not planning on really getting into games, then PS3 would be a better choice. It is a better movie player, as the XBOX 360 is very loud while playing movies. Plus the 360 requires an external attachment to be able to play HD-DVD.
As a pure gaming system, the 360 is better however; it has a more powerful graphics processor, and is the first choice for developers to create games on, when making games for both systems. In other words, if a game is available for both PS3 and XBOX 360, the 360 version will be the 'original' version, and the PS3 will be a port of that game. There are plenty of screenshots around the net showing the differences in the same games for both systems, and the differences are dramatic.
Plus as I mentioned, I think Blu-Ray is the better choice to go with for now, as it has more exclusive movies.
4) In summary, if you're only going to buy one system for watching HD movies with games as a nice bonus, the choice is clearly Playstation 3.