To those who don't see a use for this device, here's why I'm buying one:
Photos:
My main goal is to make my iPhoto photos easily viewable on my big screen TV.
Home Movies:
I also like to make my home movies available to stream easily to my TV. Front Row requires those movies either be in iTunes on my MBP or in the Movies Folder on the PB. Don't know if this will change in Apple TV, but if I do have to import them into iTunes (annoying), at least most of my media will be in the same place. (I don't understand why Front Row / Apple TV can stream directly from the iPhoto library, but not the iMovie library?)
Airplay:
My wife and I are both iphone 4 users, and we have a 5-month old baby. Lots of photos and videos on our phones, which often don't make it to our mac until we synch our phones once every 3 weeks+. To be able to show off baby photos/videos on the big screen with just a touch of a button instead of digging for a $50 cable to hook up the phone to the TV will be fantastic. Also, rumors suggest that any video the iPhone can play will be playable on the apple tv via airplay. Could come in handy.
YouTube/Flickr
It's good that you see all these applciations for the

TV. It will do all of that very well. The old version does too, except that it didn't get the airplay feature. Other than airplay, Apple has had the ability for you to do all of that for the last 4 years.
Regarding the whole 1080p issue: Yes it would be better if it had 1080p, and I expect apple will probably put out a 1080p capable version of this product in a year or two. But at $100, it's not much of a loss to get the next generation of this apple tv for the living room and move the 2nd generation one into the bedroom. Currently, 1080p is a non-issue for me. I have blu-rays and a blu-ray player. I do have a camcorder that can do 1080p, but the movie files take up twice as much storage space as the 720p ones, so I've stopped shooting in 720p just to save myself time on file management. Plus the difference between 1080p and 720p for home movies is not that significant. Nature documentaries and special-effects movies: yes! Home movies: meh. I'd rather have the extra storage space so I can store more home movies than be able to watch them in slightly higher resolution.
I appreciate your stance on this point, so I'll offer the counterpoint. If you are shooting all that video with a 1080p camcorder, you might as well shoot those precious home movies (that you'll never get to shoot again) at 1080p. You obviously wanted to buy a camcorder to record best possible video, so deciding to shoot in 720p- while certainly your choice- is somewhat wasting a quality option you'll never get again. I also have 1080 Camcorder- my second one capable of shooting at 1080, and I pretty much shoot everything at the highest resolution so that I at least have the option to watch it when the 1080 vs 720p debate is long gone.
Apple gives us the tool- iMovie- to read in that 1080p content. We can edit it at 1080p, and render it from iMovie at 1080p. Those 1080p video files will import right into iTunes, and play there just fine. Unfortunately, only this last link in the chain- both the 4-year old

TV and the new generation- are gimped by design at 720p MAX.
If that's good enough for you, great! And hopefully you are right in that we won't have to wait another 4 years for Apple to finally give us some 1080 hardware in the next-next-generation

TV, for those of us that don't mind the bigger file sizes, etc in exchange for the higher resolution video.
Your alternative implies that you'll either be locked at 720p MAX because you shot your master footage at a quality less than you could have, or you'll need to go back and re-render all your accumulated footage by that point in time so that you have 1080p versions when there's a 1080p

TV. Wouldn't it have been nice if Apple had rolled out a 1080p capable

TV now, which would have worked for your "720p is good enough for me" opinion and for those of us wanting a little more too? At least you would have had the option to show your best 1080p-shot footage at 1080p, rather than Apple deciding for you- and me- that 720p max is good enough for everyone.
Our "baby" is 13 now, and we've been shooting home movies since her birth. Back then, the best camcorders we could get were SD. So we shot those movies with the best available video quality. It's great to have those videos, but we so wish we could step back in time and re-shoot them with our 1080HD camcorder now. They look "OK"- and are certainly better than nothing. And per some of your justification, SD file sizes are much smaller than 720p, but that's small consolation now, nor does it motivate you or us to continue to shoot in only SD resolutions. I never see any of the "720p files sizes are smaller" crowd arguing for the even smaller file sizes of SD video.
Your baby can be captured for his/her early lifetime in 1080, which might be near bleeding edge now, but won't be a few years from now. Get it while you can, because you won't get to come back and reshoot it at 1080 later on, when iMacs are shipping with 8TB drives stock, and a 10GB video will not seem any bigger than a 2GB video today.
I'm glad that you're happy. I've enjoyed my

TVs for 4 years now too. The things you want to do will work very, very well. I just wish Apple had chosen to add more than 6 frames-per-second to the max resolution spec vs. a unit they rolled out 4 years ago. My money was so ready to be spent on a couple of upgrades. 6 frames-per-second, netflix, and airplay was not enough... even at $99.