I bought my ATV unit around last November as I was cheesed off with the lack of good Blu-Ray films, and at the sametime the horrid, animated low menus that every film seems to have. So I figured Apple's Rental collection would serve me well.
The present gen Apple TV is a good bit of kit - for doing what it is supposed to do, which is playback your iTunes media and rentals. It does this incredibly well if that is ALL that you want.
However...
One key thing you need to factor in is the selection of films on iTunes itself. There are certain new films that are newly released and they aren't even in HD, frustrating to say the least. Some new films cannot even be rented full stop, only purchased! It is mostly I believe due to the publishers though, so they effectively control the platform in that regard.
Hacking the ATV unit I would recommend and can easily be undone should you need to. This extends the functionality of the device and allows you to use the rear usb port to attach an external hard disk. The best thing is that XBMC media player is available, which can play every format under the sun - even certain high res films, which stretches that aging Pentium M within the device.
It's onboard hardware however is massively out of date and needs a revamp. It plays back iTunes 'HD' content fine, but throw video recorded at a high bitrate and it'll cry.
A Mac Mini would be a better solution in every way, but it's a lot more.