While I cannot say for sure as my new AppleTV hasn't shipped, nor do I have a 4.2 beta, my guess would be that it does stream HD via airplay on devices that support it.
The iPad and iPhone 4 do not "down convert" the video. (And while on the subject, strictly speaking it's not a down-conversion that's happening. iTunes just copies the SD counterpart included with the HD file, where available).