I have been running XBMC and Boxee on my Apple TV, and love it.
I use the Apple TV interface for music, pictures and youtube. I use the XBMC interface for watching all of my movies. It is the best of both worlds since I had converted a lot of my movies to XVID when I was on Windows. I stream from my iMac to the Apple TV via wireless. The only files I actually store on my Apple TV are pictures.
XBMC allows you to watch pretty much any format, even DVD iso. I was pretty impressed by the fact that I can stream an uncompressed DVD iso via wireless without a hiccup.
So far, the only thing I use Boxee for, really, is to use ShoutCast to listen to some stations...
For info on how to install XBMC and Boxee, follow the instructions at this link:
http://www.xbmc.org/wiki/?title=XBMC_for_Mac_on_Apple_TV#HOW-TO_install_XBMC_on_your_Apple_TV
For me, the Apple TV + XBMC is excellent. The only functionality that it does not provide is NetFlix, but that has to do with the issue of Silver Light running on the Apple TV...