as Joe says, digital can sound fine. modelled amp sounds tend to sound and feel like recordings rather than an actual amp in the room with you. that is, if you use the Van Halen pre-set on a Pod XT, it sounds like the cd, only your fingers are controlling it, whilst if you got to actually play through Eddie's Plexi, standing in front of it with your guitar, it would sound and feel completely different. but if you then listened back to recordings of both performances, it might be hard to tell the difference!
i think for demo recording and quiet practice, digital modelling is pretty hard to beat. you can get a good, usable sound without too much hassle and without annoying the neighbours. plugging your guitar into a little box to make a demo is a lot easier and more convenient than trying to mic up and accurately reproduce a cooking valve amp!
playing with a band is a different matter. at volume the way your guitar interacts with a loud amp is a very organic thing, and there's yet to be a digital box that can recreate that. they can sound good live, and your average audience is never gonna know the difference, but you will!