Sounds like it's too good to be true. In fact, the team is urging that everything at Blu-Ray is against their business model and the kind they treat media.
While in early stage it's likely that VP8 will be used to archive this goal. Together with Matroska and Ogg Vorbis sound, a high quality is possible without patent encumbered stuff. this combination is used in WebM, too, but the site says the format will not necessarily be identical to WebM. That leave the team room for their own improvements.
The VP8 codec has constantly made progress since it's release, and not only equals the quality of MPEG4, but in some cases, even overcome it.
However this project is completely independent from WebM and also wants to establish a region-free, non-drm distribution standard that plays in different devices and could be used to replace Blu-Ray.
While it's very unlikely that the big movie companies are ever releasing their stuff without drm-crap, independent Indy-movie companies might very welcome this format. They will save a lot of money for licenses.
The project is at Kickstarter, ready for your support. In my eyes, it's one of the most remarkable projects. The goals are high, but the techniques are pretty there already. Take a look for yourself if you like.
Project site: Lib-ray.org
Update [06/04/2012]: The Kickstarter project is financed. You can still support the project. Things are looking good.