Google Video provides screen captured photos from a news item on KRON 4 News at 5:30 on January 31, 2005, showing Netflix workers processing envelopes in a San Francisco Bay area Netflix distribution center. I keep hoping the video will someday be available. In the bottom left-hand part of the photo, you can see the discs already in sleeves being scanned, presumably.
KRON 4 did a Netflix vs. Blockbuster comparison back in January 2004 which gives the lead to Blockbuster for accuracy, but Netflix for speed. Read it here.