Evidently, the DVD Forum compared HDTV quality at identical bit rates with both MPEG4 H.264 and Microsoft's WindowsMedia 9, and WM9 won every test by a comfortable margin.
The HD-DVD standard is shaping up to include WM9, H.264, and at least one lossless audio codec, along with MPEG-2, Dolby Digital, and DTS for backwards compatibility with current DVDs and equipment.
For more discussion on this topic, including comments from the VP of Microsoft's Windows Media division, who was present for the vote, see
this thread.