It's another move away from physical media for Netflix, and one that's gotten people understandably upset.
Up until now, Netflix has had a feature on Instant Watch devices like the PS3, Roku player, and iPhone that would allow you to add a movie to your DVD queue if it wasn't available to stream. Seems like a good idea, right? Well it's gone.
Netflix has announced that they're pulling the option because "providing the option to add a DVD to your Queue from a streaming device complicates the instant watching experience and ties up resources that are better used to improve the overall streaming functionality."
The problem with that answer is that removing the option actually makes things more complicated. To add a movie to your DVD queue on the iPhone, you can't just search for it and then add it to your queue like you used to. You'll have to search, find it, realize that it's unavailable streaming, close the Netflix app, open up your internet browser and then add it from the Netflix site. That or keep a netbook handy for adding and removing DVDs and Blu-rays from your queue.
This seems to be yet another move away from DVD and Blu-ray discs for Netflix, which has been focusing intently on its streaming service.
Source: Netflix Blog