If they were to use an external power supply they could make the next Mac Mini case even smaller than the current AppleTV. It could conceivably be shrunk down to a similar size of the Raspberry Pi.
6 months ago I would have said that ain't gonna happen but with the new iMac having an external power brick I would not be surprised. The biggest issue now with size is the I/O, unless you eliminate ports there is going to be a tough time reducing the size of the box. Never underestimate Apple in this regard, imagine a smaller box with just a power jack and a couple TB4 ports...
I am a huge fan of the Intel NUC, I have a couple and they are great computers for what I use them. Their size is based primarily on the ports provided. On my Hades Canyon box, it is a bit larger than the Mini but has many more ports front and back. Even my smaller 4 inch NUC has 2 DP, 6 USB, Ethernet and more in a box much smaller overall than the Mini.
I like the idea of an AppleTV sized case, especially if they can retain the Ethernet, USB-1 and HDMI and get 4 TB4 ports. Without the need for the big cooling vent on the current box I think that is doable.