There is nothing that Apple can't accomplish by building all functionality into the AppleTV. Going the route of "iTV" has no advantage for Apple. Sure it would be the nicest looking TV display on the market, but it would also be astronomically expensive...and you would have to buy one just to get the functionality that can be included in a $99 box. It would hurt Apple's TV effort, not improve it.
What they need to do is make the Apple TV better, and still charge $99 for it. Every iOS Device user that also has a television in their living room should want a $99 Apple TV....Apple just needs to bake in enough reason for them to want it.
Currently, it seems their offering is appealing to a small fraction of iOS device owners. What Apple needs to do is fill in the missing pieces.
I don't know if an App Store has any potential on TV at all....I just don't understand sitting on your couch browsing Facebook on your TV, reading articles, Playing Angry birds....it just doesn't make a lick of sense. The physical remote is not enough of UIController to interact with Apps, and iOS Devices also fail here, unless you don't have to look at the screen.
Developers such as Rovio should have, by now, figured out how to make a game like Angry Birds display on the TV, while your hands move across the touch screen of iOS device, eyes-free. Considering the Mac version does exactly this via trackpad.
But....then again....you have a problem here: The whole idea is still idiotic.