Forgot to quote this post.
Apple TV actually uses a Pentium M.
pentium whatever it is, it wont be able to play BR stock - ever, even with say the 9400M it would be struggling a bit (at least at BR data rates)
The only way to get blu-ray playback in the Apple TV would be for Apple to write software that takes advantage of the GPU. Even Core 2 Duos can't reliably decode blu-ray discs loaded with H.264 or VC-1 video.
this wouldnt solve the problem. the

higher clocked C2D machines can very well decode BR, as long as all your hardware is HDCP compliant.
Thats why the Apple TV is limited to 720p. All the video decoding is done on the CPU. The GeForce 7300 in the Apple TV is more than capable of decoding and playing blu-ray video. The problem is that Apple TV's software nor OS X support full hardware acceleration for video.
i dont know where your getting your information, but the 7300 isnt HDCP compliant, meaning it cannot decode and play BR movies nor can it handle the power requirements of the movies, it is only capable of playing 720p movies as you have said.
the main thing here:
could it play a lower bit rate movie that has been ripped - yes.
could it play BR directly - no.