From a hardware standpoint, they're nearly identical except for the resolution difference. However, recent software updates have introduced differences in effective capabilities. The biggest consequence of the software upgrades: Apple TV 2's YouTube client no longer works (that's YouTube's choice, not Apple's), and new Apple TV channels/options won't show on version 2.
My guess is that as time goes on, more online streaming services (Netflix, Hulu, etc.) will change their client delivery too, reducing the 2nd gen to playback from local iTunes libraries only-- which it does quite well, I'll admit, as I still have two 2nd gens as well as one 3rd gen.