The Apple TV is designed to be at least DVD quality. It remains to be seen how typical iTunes content will look, but the stuff you can make yourself could/would be that good with Handbrake or such. Basically, it's a lot better than analog cable (or even the digital channels), which is what you're describing.
Thanks a lot...so I will be buying an AppleTV soon...its simplicity is just awesome...and it's gonna be the key to its success...
Besides, I really wonder now how useful it is to rip DVDs and stream them from the Mac, when you have the DVD player in front of you...