I'll see if I can talk about the AppleTV and tie it in with the ipad/ipod.
I really think the ATV and Ipod/Ipad are totally separate beasts because music and video are handled so differently.
I know a ton of people that buy music from Itunes or Amazon because it's so cheap now to buy it legit. I despise the Itunes software but it's very easy for anybody to either buy songs, or add outside songs to it and get it on your ipod/ipad. Personally, I have Itunes installed on our 6 year old laptop and only use it for updates. I copy songs to my touch directly via usb with a freeware program.
Books also to an extent. You either buy it through ibooks or convert an existing book to the ipad format.
Video is a totally different animal tho. First, I don't know anybody that buys video, whether it's tv episodes or movies from Itunes. Even with torrents, Netflix/Hulu etc make it cheap/free to watch stuff. Apple is trying really hard to get studios to sell tv episodes for $1.99 each. If this happens, I think people buying video through Itunes will explode and make the ATV more viable. So far the studios don't want to do it. Whether a TV show costs $1 million an episode to make or $10k, Apple wants to sell it for $1.99. Studios think $1.99 episodes makes us think their products are too cheap and if they ever agree to this, they can't go back.
Until the above happens, people need to add outside video to Itunes, which can be a major PITA. I have divx files, xvid files, wmv files, mov files, flv files. My dvd's are in ISO form. My 1080p files are in mkv. I'd need to convert all this #### into formats that Itunes can handle. No thanks. If Apple expanded their codec support I think the ATV would be more popular but Apple being Apple, that won't happen. Music doesn't have this problem because everything is pretty much in mp3 or flac.
So here's what I did. I have a WDTV LIVE
http://www.wdtvlive.com/. It cost me $100 on sale. It plays everything I throw at it, don't need to convert a thing. It has HDMI, component, composite, TOSLINK. Ethernet and wireless N. It plays photos and mp3s also, goes to YouTube, tho I don't use it for them.
I have all my media on a 6TB Windows Home Server in my closet. All our movies, photos, music is on it. My WDTV can play anything off it. Any computer in the house can play anything off it. My ipod touch (and ipads!) can play any video on it, even from outside the house. Air Video is the best iphone app I ever bought for $3. I can be on a plane and watch 1080p movies off my home server. My 32gb ipod touch has access to 6tb's of movies.
Until the ATV can do something like the above, it will continue to be a flop (for me). They need to cut the tether to Itunes, expand their supported codecs considerably, or get all the studios to cave in to $1.99 media. I don't see any of this happening soon.