The reason the original post gave for getting rid of his old machine was that it couldn't handle 1080p content. The AppleTV can't do more than 720p (with XBMC it can decode at least some 1080p, but downscales it to 720p for output to your TV).

I'm less concerned about the resolution where absolute bandwidth is your limiting factor. ATV has an absolute bandwidth of 6MBps. OTA has an absolute bandwidth of 18MBps in the US. Even if it could use 1080p, outside of still images, its going to look like crap during complex scenes. Its the balance between bandwidth and quality. If I want high-quality (like Avatar or any Pixar movie) I'll get it on bluray, for everything else ATV DVD-quality is fine.

But as I said before, some people will have the need for a HTPC. I have a moderately small apartment and don't watch that much TV. I realized, a while ago, that keeping a dedicated PC, recording shows I'll probably never watch, running 24 hours a day was futile. If there is something interesting I can watch it live, download it through iTunes, or pull the occasional torrent.

I jailbroke my 2nd Gen AppleTV and can confirm XBMC works nicely - and you can add different apps to it too. I did the new untethered jailbreak using Seas0nPass, it wasn't to difficult (~30 minutes).

Edit: Oh, and XBMC just gets added as another menu item, so you can still use the regular AppleTV ui too.

Can you set it up to automatically start with XBMC? How hard/easy is it to upgrade XBMC as new versions come out? Does the AppleTV support a keyboard or some other device (iPhone?) to control ATV?

1. Not that I know of, but it's just two clicks to the right on the home screen - I usually just leave it running all the time, so it isn't much of a problem.

2. No idea. If I had to guess it wouldn't be harder than the original jailbreak, and potentially much easier.

3. You can use your iPhone/iPod touch's Remote app to control the ATV (the remote it comes with is a pain for text input) [No jailbreak required]

Thanks!