Here's how I envision this shaking out, with some minor tweaking along the way. Just like Jobs said for the Apple iPhone ("Making phone calls is the killer app"), but in this case - TV is the killer app for the Apple TV. Music and Photos are simply elegantly designed extras that add to the digital lifestyle and personalize the experience.
The simple part for now...Apple wants you to buy a new Mac with 802.11N built in and with lots of storage (and/or you can add your own external storage for even more capacity). This computer may reside somewhere in your house other than your living room/family room/bedroom, etc. where your TV(s) are currently located. You then buy an Apple TV (also with 802.11N built in) to stream the movies and TV shows that you purchase from iTunes.
The cool part later...is going to be when the video (movies and TV) that's streamed to the Apple TV is true VoD AND live TV coming straight from the ITMS using WiMAX! How's 200+ plus channels of entertainment sound for your viewing pleasure? Oh, but you want TiVo like functionality, no problem, don't forget that OSX Leopard already has PVR/DVR functionality buried deep into its code base (I've seen the screen shots for it before on this forum). Something I'm sure that Apple could incorporate with Front Row via the Apple TV. Under this model, Apple will compete with Telco IPTV, Cable, and Satellite, which is one reason I think they chose Apple TV as the name for this product. Apple will either find a way to use their Apple Stores as WiMAX distribution hubs (already strategically located within wealthy demographic regions across the US to access a portion of their target markets) to circumvent the phone companies IPTV DSL based offerings and cable companies to deliver TV and VoIP over the last mile (or over the last 6 miles or so to be exact according to the standard for fixed WiMAX) OR partner with the phone companies to leverage their existing/developing WiMAX footprints across the US to reach broader markets.
The Cingular/AT&T agreement could be stretched to include the WiMAX offering in the future or they may just use a wireless provider's network (AT&T, Sprint, Clearwire, etc.) to become their own MVNO (Mobile Network Virtual Operator) to provide a seamless experience to the customer. This may also be the reason Apple went with Intel. Intel plans on building WiFi and WiMAX into their portable chipsets, so theoretically, Apple could utilize these chipsets in their Apple TVs or ask for this technology to be embedded into their desktop chips as well.
SO...you end up with a complete Apple solution for your all your home or mobile entertainment/communication needs. Apple computers located somewhere in your home for storage and/or a stackable storage solution that sits on top of the Apple TV (using the USB connector already on the box), an Apple TV connected to all the TVs in your home (possibly leased or rented by Apple as part of a service agreement to lower the cost of acquisition to the end user - just like your cable, satellite and IPTV set top box is provided today), an Internet connection provided via Apple using WiMAX for the last mile or Mobile WiMAX for access while on the road (connected to your laptop or iPhone), possibly a large screen Apple 40+ inch HD LCD down the road (we've all heard these rumors for some time now), and the next rendition of the iPod HiFi connected to your Apple TV for your virtual surround sound/home theater audio experience so you can enjoy the show or listen to your music in high fidelity. Oh, and don't forget the regular iPod as well. I have to admit. This would be a pretty slick implementation if they can pull it all together.
How exciting indeed! Apple TV? Sign me up. I'll take 3! One for each HDTV in my home. Potentially another example of Apple making something that we didn't know we wanted or needed until they made it for us. Man...I'd love to be a part of this!