You'll always need a computer with iTunes to sync or stream to it.
You could also use a 750 gig drive for it, so long as you could fabricate or buy a 2.5" PATA to 3.5" PATA cable and run it out of the ATV to the 3.5" drive in another enclosure. This is what really annoys me about Apple: why didn't they put a SATA drive in there? Life would be so much nicer.