Here are the features for the ATV1:
http://firecore.com/atvflash
Here are the feature for the ATV2:
http://firecore.com/atvflash-black
You do not necessarily need to pay for that method, but it is an option and give you an overview of the benefits of each ATV. Both are untethered so don't worry about that. Their FAQ states that their jailbreak works with both Mac and PC.
The ATV1 can still work with iPhones and iPads, but you cannot AirPlay in the sense that the word is used by Apple now. You are unable to AirPlay video or mirror your screen, but you CAN "AirPlay" music from a computer with iTunes (I'm actually not sure if you can AirPlay music from an iPhone or iPad because I have not attempted to in a while and can't remember. I'll have to check that out and get back to you).
As far as which one to purchase, the ATV2 has access to Netflix, Hulu, MLB, etc. and the ATV1 does not. So,if those apps are a must for you or the possibility of mirroring any app from your iPad to your TV is desired, then the ATV2 is your device.
The ATV2 is priced higher because it CAN be jailbroken so it's like there is a "tax" on it, but that's a decision you'll have to make.
Some other options:
Check out Plex Media Server. It allows you to use your computer as a media server and broadcast your media throughout the same network. You can then download the Plex App for iPad or iPhone and watch movies that way.
If you want to stream to your TV using an ATV, you'll need a jailbroken ATV2 to run Plex (ATV3 cannot be jailbroken at this time). OR, you can use the Plex app to watch a movie, then Airplay the movie to your ATV and watch it that way. A Roku WILL allow Plex to be installed, so that's another option if you do not mind leaving the Apple ecosystem.
In order to play movie files on an iDevice, they need to be .m4v. So, if your movies are already in that format, then you could just copy them into your iTunes library, turn on HomeSharing, and watch them through your AppleTV. If they are not in .m4v, then you can convert them using Handbrake.
Basically, in order to wirelessly stream media, you need an AppleTV, Roku or something connected to your TV and some sort of media server running on a computer.
OR
You can "alt-click" the files from the external HD and drag them to iTunes. Using the alt key will not copy the entire file over from the HD, rather it will create a "link" in iTunes to that file. That way, your your computer's internal HD does not get overcrowded with movies, but you can still Homeshare the files to an AppleTV.