I've bought online music before. I think I own like 3 songs from iTunes. I use QTFairUse to strip the DRM off (I had to revert to an older version of iTunes to continue doing this).
I do prefer owning the CDs though. I'd rather have access to the Red Book audio off the CDs and make my own MP3s or AACs or whatever instead of getting just an MP3.
I've bought many things that have no physical media. Tons of stuff off XBLA. HL2 (well that was "free" with my Radeon 9800 XT), Valve's Orange Box, Everyday Shooter, Day of Defeat: Source, Fallout, and Fallout 2.