In this order:
iTunes
Amazon Video on Demand
DVD
Netflix
Torrent
VHS
I check iTunes first for everything and buy from there. (over 180+ movies). One sort of exception to this if there is a new movie I absolutely love and must own, then I'll check for a Blu-Ray version that comes with an iTunes digital copy. I've gotten probably 6 movies from digital copies like this, most recent example: Despicable Me.
If iTunes doesn't have what i'm looking for I check Amazon Video on Demand. I've got a Blu-Ray HTIB that has Amazon support built-in so it's easy to watch content from them on my TV. I currently have 4 movies from Amazon.
If I can't find what I want for legal purchase digitally, I then check for it on DVD and rip it. I can't remember the name of the tool I use to rip with, it's a hella' old XP tool that has worked on everything I throw at it. For compressing/conversion I use an Elgato Turbo.264. (40+ movies)
If it's not on DVD then i'll usually just check for it on Netflix so I can at least watch the movie to satiate my interest in seeing it. Alternatively, I may just watch something on Netflix if I think the price for it on iTunes/Amazon is too much to tide me over until it goes on sale.(20+)
If I really want to have a copy of something that isn't on any of the above, I'll then resort to checking torrents, and if there's no torrents I'll go as far as buying it on VHS and recording it to the computer with an Elgato EyeTV. (~5 torrents and 3 VHS)
I used to just buy DVD's and rip them, but I prefer to just buy digitally to save the time and hassle of ripping and encoding. If I were still a teenager, there is no doubt I would just torrent everything possible, and rent DVD's to rip instead of buying anything. (tip: check your local library for DVD movies

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