I've been watching more iTunes HD content (on my new 1080 LED tv...the older 1080 LCD tv broke a week back) and I am somewhat amazed at the quality of the HD streams. I know others will tell me how awful my eyesight is, how much banding and loss of "X" i have digitally instead of with a Disc but — ehh. I can see banding at times. I think the AppleTV displays crisper than my Fios or Comcast TV via digital boxes. and I can tell the 720 vs 1080 networks and how stuff on ABC isn't as nice as stuff on CBS. though the streams on the AppleTV of ABC shows do look to be at 1080.
We upgraded the ATV 3 with an ATV4 this past Christmas. moved the ATV3 to the basement for the kids. I am pleased with them. The idea of a 4K ATV is not for me now without a 4K TV but glad to hear others will be getting that upgrade.
I truly agree, I've always been very happy with the picture quality of iTunes films in HD! (and Vimeo - I like buying film on Vimeo as there is no DRM, so I can give a copy to a friend