Apple dropped updating FrontRow long ago. With the Snow Leopard release, they made QuickTime X which helps with their iTunes Store video collection, but did not update DVD Player or FrontRow. They are just old stagnant pieces of software like Sherlock was for so long.
As an aside, they didnt update Dashboard, either. If I a conspiracist Id say they since cant make extra money off the widgets they dont care about them.
I agree with both of you.
However, the number of people who use a Mac mini AS a super Apple TV and/or basis of a home theater system is pretty high, perhaps even accounting for a large proportion of mini sales (given that it hasn't turned out to be a very successful BYO monitor and keyboard switcher machine, as was originally intended).
This means there are likely to be a large number of people who might buy the mini if it was just a little better in its home theater support, that is, if Front Row was updated.
Now, if it comes to making a profit, the Apple TV is $229, and a mini starts at $599 plus desirable extras to bump it up to full home theater worthiness.
These could be additional Mac sales - Mac sales that will later result in more OS upgrade purchases, Apple accessories, new remotes, overpriced cable dongles, etc, etc. (All of which I've happily bought for my home theater mini - I'd even pay for an updated Front Row with new AppleTV features.)
By not updating Front Row, I think they're missing an opportunity.