I too think the loss of both details, definition, and transients is humongous in Dolby Digital, though it is by all means a good format considering what it's made for. Personally I don't like it anymore though, but I do respect it.
Most people doesn't think much of it as they don't really know what it could have been, but they react to it in a very physical way as the human conception of reality is very much based on small sometimes barely noticeable details and imperfections which helps us distinguish between different sound-sources in a more realistic way. Dolby Digital, like MPEG Layer 3 and such for example, is losing most if not all that small pieces of air in the process of reducing the bitstream. That doesn't mean the mix gets totally bollocks, it just means the audience doesn't get as into the illusion as they would had had the soundstream been richer.
For me, DTS is da shit! It's still lossy, but it is MUCH more transparent to the material due to both lower compression ratio and frankly a better algorithm.
It's difficult for me to explain exactly how it works, but it is not based upon samples but in frequency response. By eliminating stuff the codec doesn't think is perceptible, or at least unimportant, the codec can keep the soundfile small. One of the things lost in this kind of compression is the extreme highs, and in at least MP3, the extreme lows. I'm not sure whether or not the fullrange speakers in AC-3 have much sub-bass. I do know the LFE does (well duh! ;-), but I actually hasn't checked a Dolby stream in an analyzer yet as I has with MP3 :-) A more direct effect is that the sound gets more dull and compact, with more transient sounds risking to drown in the mix, at least on lower settings. Some people like this effect though!