I'm not sure exactly what you mean by "virtual theater", but if you have an app that allows you to freely move and resize a virtual screen in a black "void", the movie-watching experience is exceptional, including on a Quest 2 or 3.
I’m glad it’s gotten better. A few years ago, it was genuinely terrible. Any dark scenes looked awful, screendoor effect was huge. Haven’t tried Quest 2/3
I've tried the Quest 3 and it's still not very good IMO. Quest 3 is still a low contrast LCD and at absolute best gives you close to a 720p virtual theater screen.
I think the AVP is the first headset that can actually provide a good movie viewing expedience in a headset coming close to a full 1080p virtual screen and with high OLED contrast.
I recommend using the popular SkyBox player.