Hey Chris, I'll be using the Apple TV in my home (3 of the in fact) and perhaps my answers to your questions may shed some light on the kind of user this product will appeal to.
First a quick summary of where I was coming from (which won't be typical of AppleTV customers):
I've had a home theater setup for a number of years. Its always been a centrally distributed AV system with the main focus on my FP in the living room but with parallel feeds going to a whole house cable network for the TVs in the kitchen and bedroom.
I had two OTA HD EyeTV devices hooked up to my Mac Mini (intel), two Replay TVs (well three but only two hooked up at any one time) connected to DISH, a DVD player, Laser Disk player, Playstation II, and VCR. All of this controlled through my receiver and a MX-500 Universal remote.
I started collecting HD storage to put all my music and video on and wrote my own HTPC application for the mac while Tiger was in development as there were no good HTPC solutions for the Mac at that time.
I was generally happy but the whole system was starting to creak under its own weight and I had to keep tweeking everything for my wife to watch TV.
I've since given away my ReplayTVs, given up DISH, the Laser Disk player, the VCR and taken my DVD player into work. I'm down to a G4 laptop as my iTunes server and the mac mini as my EyeTV recording device with all content on a 5 TB NAS.
Do you still subscribe to Cable or Sat?
Nope. I gave up satellite in October.
There are reasons why I don't think Apple can replace the PVR.
I agree. Most people with a PVR aren't going to replace it with an Apple TV (I'm an exception to be sure). I think the majority of Apple TV customers will be users that don't have a PVR (other than perhaps a cable box that comes with one).
Let's expore a few things here.
Ah, this has been my biggest hurdle personally. I missed an entire football and most of a hockey season now. I've seen one Sharks game that was on NBC and it wasn't even in HD.
However, I did purchase the Fiesta bowl from iTunes and while the quality was subpar, the experience was not. An excellent game and commercial free. I'd pay $3 a game for SD Sharks games without commericals at the drop of a hat. I've never been one to have to see something "Live" as I always time shifted the content a few hours or a day anyway so I'd be perfectly happy getting that from iTS.
This won't be true for most users so iTS isn't going to be any kind of viable substitution there.
You might not watch local news
You're right, I don't. I've rarely found this a useful source of information and found NPR to be much better personally. I now hardly ever listen to live radio either with Podcasts being so prolific. I get 100% of my news from podcasts and the web. iTunes handles this pretty nicely and there are a number of news video podcasts now that if one wanted, they could watch those via AppleTV. I watch numerous tech video podcasts at work and it rocks.
Live TV isn't dead
Again, you might not watch bits of live TV, but Average Joe still does (as do I, even with a PVR). There is loads of stuff out there that I'm not going to record and watch, but if it's on and I catch it and will sit and watch it. The Discovery Channel (and related networks) are a great example. I really have no interest in recording and watching later a lot of the programs, but I see it in my Guide and think "well, that might be interesting." Three hours later I still seem to be watching it.
Live TV dies with the Apple TV model, unless you are paying double for your content. Do you expect Average Joe to be fine without Live TV and the above problems (and there are more to go with that).
Yep, Apple TV doesn't have a compelling "I just want to sit down and channel surf" model in the first release. For me however, I never was much of a channel surfer. If it wasn't already recorded on Replay, I didn't watch it and did something else. Actually this leads into one of the really compelling features of the whole iTS and Apple TV combo. If a show was on last night that you didn't know about, you're screwed. You either have to wait to see if it is on again or just forget about it. But now with iTS, I can just download it and watch it. I've done this for a couple of new TV shows that I hadn't even heard about until people at work mentioned how good they are. I tried one episode of Heros and then bought a season pass. If I was still using a traditional PVR, I'd have to wait for six months for it to come out on DVD (if it actually does).
I don't know if you watched Steve's keynote when he introduced Apple TV at MacWorld, but he was careful about representing the Apple TV not as a PVR and not as something that replaced other content providing mechanisms but as something "new" (yeah, there have been many media extenders in the past that do the same or more...). This doesn't replace your DVD player or your TiVo, it augments it.
Apple TV is a way to get those TV shows you missed, or watch purchased movies on a whim, or listen to your entire music collection, or view all your kids home movies, or see all your pictures on your big screen. Its a way to experience your "iLife" in the living room.
This is Apple's first step into the living room space and they are doing it in a small clean device that has a limited feature set that is supposed to "just work".
This is a device targeted at customers who are familiar with iTunes and know what syncing content to an iPod is all about so taking the small extra step to sync/stream to a new type of device is not that big a deal and makes sense.
The reason why other media extenders haven't made much of a dent is they are geeky and scary and not in the public eye. The vast majority of computer users out there have never heard of Roku or about plethora of other devices out there and have no clue how to set up their Mac/PC to make sure SMB sharing is working so those devices can get to their content. With Apple TV, you just type in the pairing code that shows up on the AppleTV screen into iTunes and voila, you have another iPod like device in iTunes.