I've been contemplating doing 1080p as well as 720p but the HD space is quite significant. For example Transformers is almost 19GB at 1080p and 5.3GB at 720p.
6TBs of external storage costs around $515 now and is dropping:
http://www.google.com/products/cata...=X&ei=a3ZWTp2OKMrbgQeDoLSzDA&ved=0CI0BEIIIMAA
3TB of external storage costs around $130 now and is dropping:
http://www.google.com/products/cata...TuP0FsTY0QGyrLTKDA&ved=0CH0Q5Q0wAA#ps-sellers
If all 1080p rips averaged 20GB each like the one you quote, the 6TB external would hold 300 movies and the 3TB would hold 150 movies. In reality many 1080p rips will average considerably smaller than 20GB and some might go a little more than that. So a future-proofing approach targeting all 1080p might be able to invest around $130 or $515 to store approx. 200-400+ movies at 1080p. If someone owns 200-400+ BD discs, $130 or $515 should be quite doable... even if they intelligently go a little further and buy a duplicate to backup all that ripping work.
If they could put out about $1150, I'd probably encourage a 12TB Raid 5 like the one shown at:
http://eshop.macsales.com/shop/hard-drives/RAID/Desktop/ That would get them 9TB of space for roughly 600+ 1080p movies with (RAID5) backup built in. Of course, this can be done cheaper than that for those with some added tech skills, but that is a very simple solution for those needing big storage at a relatively low price.
Obviously, I'm with danpass on this topic, believing it better to futureproof at 1080p rather than rip now and rip again later. If one went with the big storage now, they could rip twice- one at 1080p for a master file and another at 720p for current use- phasing out the latter when they upgrade the rest of their equipment.
To the original poster, if money is tight: if you plan to stick with that TV for a long time, 1080p or 1080i gets you nothing. Your output display is capped at 720p. The current gen AppleTV is a little better at 720p than the first gen that you have. All a third gen could bring for you is maybe the horsepower for 720p maxed out at 60fps (but then you'll want to see if your TV can handle that). So the key for you is deciding if you are going to stick with that TV for a good long while. If so, rip it all at 720p and maybe buy a second generation AppleTV. If that TV is on the list to replace "soon", see the above.