AppleTV seems like a halfway step to me, it should be more of a stand-alone device.
I agree, reading this thread it seems alot of people are getting angry when anyone points out the areas where atv falls short. It has a very specific purpose, and it most likely will fulfill that purpose very well, but I feel it's the answer to the wrong problem. Hopefully this is phase one of a larger plan for media consumption. Most of us who want access to our itunes content in other areas of our home have already got it there. What we lack, or at least myself, is the centralized interface that Apple could so easily provide. If Front Row had a fifth menu, cable or satellite tv, and the Mini had cable card support with better connection options, we would be much closer. It seems that atv is simply turning a tv into a large ipod. I am someone who has had multi component audio and home theater rigs, and I have also tried to explain how to navigate them to friends and family, with a wide range of results. The last thing most of us need is another box, with more cables, another remote, and yet another interface to learn and remember. To me, Apple's greatest strength is the ability to take good hardware and make it better using sensible gui's and common sense. Also condensing multiple boxes into one (think imac or iphone) is something they do better than anyone else I know of. In short, I'm not saying the atv is a bad product, I simply feel a more full featured box would solve the bigger problem that exists in the living room, and I think it would sell. Sorry for the long post.
PS if one want's to do this Microsoft style you already can
http://enviveit.com/t-products.aspx
Think how this would be Apple style!