It's not a case of Apple holding back, it's a case of common business practice, why would you offer 1080P AND HD surround sound audio at great expense when only a fraction of people can get it?
What "great expense"? To Apple? There are many little set-top boxes for <$99 with a 1080p chipset inside. There are many little set-top boxes with netflix, etc and Blu-ray playing mechanisms inside for <$99. Certainly the largest company in the world can find a way to add 1080p chips to their little set-top box too without it adding "great expense".
Or maybe you refer to "great expense" to us consumers? If so, perhaps you believe that just because Apple rolls out a 1080p capable

TV, everyone everywhere must both buy one and pay up for more expensive content? Note, that your 720p MAX

TV will still work should a new one come out. And, relative to content, note too that when 720p was launched, SD video options remained- and still remain 6 years later- in the iTunes store. This will not be different.
If it's not great expense to Apple or us consumers, could you elaborate on who will suffer this great expense?
And I'm talking world wide here not just America, in fact the average BB speed in the UK today is 10MB, and according to the internet, America last October had an average of just 5.8MB, how is that going to stream 20 GB of video and audio? Or even 10GB and make it watchable?
Cherry picking slow-internet countries without referencing faster internet countries is a biased argument. How about Korea, Japan and many others that run circles around the UK and areas of the U.S. in terms of broadband speeds?
And again, don't stream 1080p if it can't work for you. Just keep choosing the 720p or SD option exactly as you do now. If your 720p

TV conks out and you buy a new

TV3 with 1080p hardware, it will still play your 720p or SD just fine. It will stream that 720p or SD at exactly the same pace that it streams now, taking exactly the same amount of time as it does now, using the exact same amount of internet bandwidth that it uses now, etc. Better hardware involves no loss and no sacrifices for those happy with 720p or SD now. It just lets people who want- and can use- a bit more to join our little party.
Lastly, there are plenty of (legal) sources of content other than just the iTunes store. I've owned

TVs from the beginning (2007) and I bet I've not rented/bought more than 5 videos in total. I have owned 1080HD camcorders since about 2004 or so. iMovie 06 could edit & render in 1080. iTunes has been able to store and play 1080 for just as long. I've owned >720p HDTVs since 2001. The frustration has long been this ONE weak link in the chain.
Now, apparently, people like me may finally be able to get one of these that will be able to push my 1080HD video to my HDTV without the downconversion then upconversion done in the existing & prior model. And guys like you find fault with that because... why exactly? Your 720p or SD will play to it's MAXIMUM potential on better hardware, just like one-core software will run to it's MAXIMUM on dual core or quad core hardware. You lose NOTHING if Apple rolls out better hardware. Apple will win something by doing so (more hardware sales to the "1080p or bust" crowd). Consumers like me will buy more units and get what WE want out of the little box too. More units going into homes mean more studios will be tempted to rent/sell their stuff on iTunes so people like you will get a broader mix of video to watch. EVERYBODY WINS with better hardware. There is no downside.
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I have however even more concern regarding bandwidth when it comes to streaming 1080p content over the internet (at decent and not ugly compression rates).
The game can simply change if someone wants the 1080p version. The guy in a hurry and knowing he has slow Internet should not choose the 1080p version if he wants to be watching the movie in the next few minutes. Instead, he should choose the 720p or SD version (whatever he chooses now).
However, if he really wants to watch the 1080p version and his internet is not fast enough to support streaming it, he'll need to plan for the viewing. For example, tonight I want to watch Transformers 4 or Rocky 7 in 1080p, so I'll start the download now- this morning- go to work and when I come home it will probably be ready to watch. Or (even slower Internet connection), I'll start the download tonight to watch in the next couple of nights (when it has downloaded in full).
Again, if I'm in a big hurry to watch something, I'll choose whatever has been working for me up to now- 720p or SD versions (or go to the store and rent the blu ray or DVD).
Apple can't wait for the world's entire broadband infrastructure to be upgraded before pushing technology ahead.
It's demand- not supply- that motivates the suppliers to step it up. Until broadband pipes are being pressured, there is little motivation to fatten them up. Have it the way some people in this thread are touting- that is, stick with 720p or less until
everyone has sufficient broadband for >720p- and it will NEVER arrive.
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Maybe I'll be proven wrong, but 720P still makes sense.
720P streams perfectly on my 15mbps connection. 1080P (on YouTube, I know, bad example) streams pretty poorly.
1080P streamed to an Apple TV over wifi will be hard no matter what your internet connection.
They could give you the option, but pressing rent and then choosing a resolution isn't a neat way of doing things.
The

TV3 could sense the broadband for each user and auto-select the best option. OR, it could simply offer a suggestion...
"Estimated time before you can start watching the 1080p version of this film is 2 hours, 46 minutes based upon your Internet connection. The 720p version would be ready to watch in approx. 24 minutes and the 480p version would be ready to view in 4 minutes. Please select the option best suited for your needs."
...or similar.
I think people in places with poor Internet service should retain the options to keep downloading whatever file type they use now (720p AND SD). 1080p files should not be forced upon anyone. BUT, for those that can download 1080p- or those willing to wait- I'd rather see the hardware catch up to the current max consumer standard rather than clinging to the same limited incarnation it had in 2007. Nobody loses with better hardware. Nobody has 1080p forced upon them. It's all upside for everyone involved.
AND ONCE MORE FOR THE "720p is good enough" CROWD: please note that
Apple themselves has now embraced 1080p in the iPhone 4s (and probably will again in the iPad3). Even Apple has moved on to 1080p now. So if a lot of the argument for 720p is based upon a concept that it is what Apple endorses, Apple is now endorsing 1080p. Yes, it's not yet available in the iTunes store rentals, but that's only a new model of

TV away. Putting 1080p

TV rentals in there today can't make a single dollar for Apple or the Studios because there is no 1080p

TVs. As with the broadband issue, the hardware must lead so that demand can motivate supply. Waiting for broadband or 1080p version supply BEFORE there is any broadband or 1080p version demand means we never get fatter broadband or 1080p versions.