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I love my apple tv but I also OCD over video/music iTunes management. I download my stuff off Bit Torrent/Newsgroups and convert them via handbrake. The disadvantage is this is a pain in the ass. The advantage is it all integrates nicely with my iDevices and I can stream it to a nice user interface ala apple tv. But the suggestions in posts above like xbmc or a hard-drive based media player (ex: wdtv) is better for most people. One non-advertised feature is playing iPad2 boardgames on the TV! So fun.
For family members looking for something to replace blockbuster video and have no downloading knowledge, apple tv is great for rentals. Netflix is also very slick.
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