You can stream or sync with the atv1.
Networking is better on the atv2, particularly in wireless.
You can buy movies with the atv1 from iTunes, only rent with atv2.
You can cook an egg on the atv1 it runs so much hotter!
The output capabilities of the atv2 are much better then the atv1, despite no composite cable capabilities.
The menu system on the atv1 is slightly better then the atv2 with better handling of seasons etc of tv shows.