Ya, this is what I want. vPod would be next to useless, imo, but this coupled with an online movie store would be HUGE.
802.11g has enough bandwidth, especially at the short range/strong signal strength that this would be designed around, for MPEG4 based transmission. MPEG2 (DVD streams) could actually be done if my math is correct. I'm on a ton of NyQuil at the moment, though, so someone feel free to correct me.
If the DMCA wasn't the cruel reality, Apple could bundle a DVD ripper with iTunes and let you transcode DVDs to another format for playback this way. As it is, they will have to unofficially support this and base the product around an online movie store. A 2 hour DVD quality film can be done in 1gb with DiVX, less with H.264 if I'm not mistaken. Apple could also beat the rest of the market to the punch with an HD movie service using H.264... forget the HD DVD - BluRay wars... give me downloadable HD movies that I can play wirelessly to my TV or even just on my ACD*!
Although, I'm not sure if .11g would stream an HD level H.264 stream... the 1080i quality Serenity trailer came in at just under 1 megabyte a second, can .11g handle that with a close range transmission? My math says yes, but the NyQuil could be influencing that.
I'm not sure about H.264, but other MPEG4 codecs have hardware decoders that are cheap enough you can but a set top box that plays them back for like $75. I don't see any reason that Apple couldn't make a $150 device that did something similar with additional H.264 support. Put a little buffer in there, say 64mb, and this would be pretty reliable, I'd think.
*Note: I don't have an ACD, but my Dell LCD isn't bad... be a good reason for someone to buy a 23 or 30" ACD, though.