rworne and LAR196,
The biggest difference between ATV1 and ATV2, is the way the content is stored, or not really stored at all in the case of ATV2. The old ATV1 required that you sync the device with your computer; the content (music, photos, movies, etc.) was then stored to the hard drive of the ATV1. The new ATV2 wirelessly streams all content from your desktop, laptop, iPhone, iPad, etc. The feature is really pretty slick. It even works between multiple accounts with Home Sharing. If you own an iPad or iPhone, the ATV2 really is a must at only $99. With the free "remote app" from Apple, your iPhone or iPad become a truly seamless remote interface wirelessly "Airplaying" all of your content. If you have people over to your home, and they also have the remote app, they can request songs from your iTunes library (if you allow access). You can then choose to play the song or put it in the cue; incredibly neat feature if you have people over often. You can also choose which photo albums to stream to the ATV2. While music is playing, all of your photos are cascading down your TV display. Too many other features to list...Netflix, Airplay Pandora, Rent TV shows, etc.
I can't say enough about this product. If anyone is debating getting one of these, do it. Money well spent at only $99. Have your own poor man's Home Theater PC.