You can already stream video using Airport Express
You guys should really check out
El Gato's EyeHome. I haven't seen a demo of it in person--so i can't vouch for the quality--but EyeHome supports MPEG1, MPEG2, MPEG4, and DIVX at 480p, which is DVD quality. Maybe they'll add H.264 support in the near future. (I imagine they use a pretty standard decoding hardware you find in DVD players that support DIVX and VCDs. So H.264 support will have to wait until hardware decoders for it becomes affordable.)
In addition to video, EyeHome receives iTunes and iPhoto streams. The nice thing about EyeHome is that you can control what you stream from your Mac using an IR remote. The downside, of course, is that you need two pieces of hardware to make this work:
mac <--> airport express <--> eyehome --> TV
(user controls eyehome via a remote)
My guess is that if Apple adds S-video to airport express, it'll still be just a one-way system:
mac --> airport express --> TV
(user controls the mac)
I assume iTunes will be THE interface for both audio and video (and probably photo). The recent discovery of video capabilities in iTunes 4.8 supports this possibility. Yes, the pieces are finally starting to come together. Maybe we'll even see iTunes 5.0 released with support for purchasing videos through the iTMS. So, to wrap up, we can expect the following:
1. Airport Express 2.0 with S-video out
2. iTunes update
3. iTunes Video Store (a bit of a reach)
4. AirTunes remote (also a bit of a reach)
5. Apple DVR (my pipe dream)
It'd be nice if Apple provides the complete solution, and not just bits and pieces. Macs + CD burners + iPods + iTunes + iTMS is the complete solution for listening, ripping, buying, and carrying music. It'd be nice if Apple released something like that for video content.