I know that I’ve seen subtitles that appear in the bottom black band during a widescreen movie on DVD…that’s easy as crap to see. They should do that. They probably don’t more often because it takes your eyes away from the picture somewhat, but at least it’s easily readable.
There is no technical limitation preventing colored, drop-shadowed, or outlined subtitles on DVDs, however. The subtitles are actually contained in a “subpicture,” which has 2 bits of color information. If one of the four possible colors is “transparent,” then that leaves a main character color and two others to highlight with.
Unfortunately, few producers put any more time, money, or creative effort into captions or subtitles than they have to. Standard TV captions have the capability for seven colors and italics, which you rarely see used. Digital TV captions can use multiple typefaces, multiple font sizes, different colored backdrops (instead of that black bar), translucent backdrops, dropshadowed characters, and much more. I’ve never seen any of it on actual broadcasts. DVD subtitles can use embedded graphics and all kinds of other goodies that virtually nobody uses.
Only place I can think of seeing them, other than that gimmick on the special edition DVD of Men In Black, is on various animes. ADV seems to do the most with them, whether it be the pop-up “vid-notes” commenting on obscure references in Excel Saga or the “jiggle counter” in Plastic Little. DVD was the best thing that ever happened to anime in America, partially because of the flexibility of subtitling.