The #1 feature needed by Apple TV is the ability to AirPlay no matter what input I am on. There are a few ways Apple can accomplish this.....
1) Have TV manufacturers build air-play directly into their televisions (no apple TV required)
2) Have Apple TV have 2 to 5 HDMI inputs and 1 output leading to your TV, thereby making Apple TV the HDMI switcher, but your TV input would almost always be on the Apple TV so Apple TV could override the signal with AirPlay. I don't see Apple doing this especially since most high-end TV's have lots of inputs folks want to use, but I do this being very useful to folks with HDMI TV's that don't have a lot of inputs.
3) Apple builds their own television.
I could not give a darn about Netflix since their content selection is so limited (though considerably better than Amazon's). I use Apple TV as my pay-per-view source and as a better way to find movies I want to watch that I own on iTunes (going through my DVD carousel is painfully slow -- I would love to have iTunes versions of all my DVDs).
What I would LOVE to see in an Apple TV update:
1) Ability to play iTunes Extras
2) Ability to configure iTunes movies to play with N previews of upcoming movies either from:
- the same genre
- the same studio
--> Watching previews is fun sometimes, especially seeing the old ones on your old DVDs and saying "wow, remember that?"
3) A good solution (see above) to being able to jump to airplay no matter the TV input. 99% of the time my TV is on the DishNetwork input which makes AirPlay inaccessible without first switching inputs.
4) Ability to get free content with embedded commercials.