On “digital”

I’ve been stewing for some time about the mis-use of the term “digital” to mean something other than “represented as a series of ones and zeros.” Or even “able to express only discrete values.” In this usage, CDs are not “digital,” despite the indisputable fact that they bear digital data. DVDs may include, as a bonus, a “Digital Copy,” indicating that the DVD is somehow not “digital,” despite the fact that the first D in DVD stands for digital! So aside from clearly being an improper use of the word, what does “digital” mean? It can’t mean “not delivered on a physical medium,” as a “digital copy” can be delivered to you on a disk, and my complete Beatles digital collection was delivered to me on a lovely, custom-cased USB drive. It can’t reasonably mean “downloadable to your portable device,” because I can take the exact bits off of a CD and throw them on to my iPod (admittedly, this would be silly, since various lossless formats take up much less space). It can’t reasonably mean “lower quality” (though it usually does), since some artists (thank you, TMBG and Jonathan Coulton) are good enough to sell FLAC versions of their works (the complete Beatles USB drive includes 24-bit FLAC versions, which are even higher-fidelity than their CD equivalents, bless them), though—to further invalidate the “device-downloadable” hypothesis—the most popular portable device will not play FLAC versions.
Of course, my thesis here is that none of this usage is reasonable, but is it even consistent? Can a definition be articulated? What do people think it means?