The way I see it is;
This is not a games machine.
This is marginally more expensive than the present G4 mini but with overall better specs.
This and the Boombox are a statement of intent from Apple. They've cornered the portable music market and now they're coming for you living room.
The Mini streams media and comes with a remote. It also easily hooks up to a TV and had digital audio output. (The Boombox had digital audio input). This is the system that Apple intends to launch their Movie download/rental service around. This is the home equivalent to the iPod - or at least could be.
Storage capacity? Well most people rent a lot more movies than they own. And if you want to shell out and download? Well it streams remember. Maybe from an external HD? Or a desktop PC/Mac?
HiDef? Well the iTunes music store does ok for itelf with its 128kbps downloads. They take up less space and most people couldn't care less. The larger the file the longer it takes to download too remember. I think Apple would want more of an 'on demand' experience.
Apple don't want to provide a DVR, they want people to get their content through them, not other providers.
The iTunes music store will morph into a multimedia provider. And this is the access point. Watch movies and listen to music at home, or take them with you on your ipod. So many people use the iTunes store, if or when they start providing full movies then people are going to want to know how to access them, and will find that the products already exist.
On their own these product are nothing special. Just like on its own the iPod isn't. There are more fully featured mp3 players out there. But its the overall experience, including the content delivery that make the ipod what it is. And that'll be true for these products too.
Of course this is speculation. But its the direction Apple are surely headed. The new Mini is the ideal machine for this. And the boombox may look daft with an iPod sticking out of it, but I bet it'd look a whole lot nicer sat under your TV.