If there is no update in Sept, you guys can keep wishing all you want, the the ATV will be officially orphaned. Apple may have some totally new idea (tablet) to take its place.
Apple has simply allowed itself to fall way too far behind the competition at this point...I think ATV is dead.
Kind of like everyone wrote the Mac Mini obituary not too far ago. Yet we got new Minis and Apple has definitely not discontinued or killed them off.
A couple of years ago the AppleTV's specs were decent enough to stand toe to toe to competition. Especially with the slower broadband speeds available to most users not to mention 1080p TV's being a high premium (where as today they are almost standard), there was no need to build a device that does anything higher than 720p.
Today, because technology has gotten so much better and the demand for high definition has gotten stronger especially since the digital transition, I think Apple would be wise to update the AppleTV to compete with some of the newer media center boxes.
My prediction is that if not in the Sept 9 even, then by January we should see an Apple TV capable of 1080p with a decent bit rate.
Perhaps it will be powered by an Intel Atom CPU and/or an Nvidia GPU, or some other technology that will make it a capable machine. It will probably have a SATA interface allowing for up to 500GB of storage.
In fact, I wouldn't be surprised if the two versions were a 250GB and a 500GB (though knowing Apple and how they don't like to make their hardware top of the line, we'll probably get 160GB and 320GB, but it will be hackable to 500GB).
As far as making it smaller, perhaps it will be the same size as the Airport Extreme (so a tad smaller than the current), but I don't see it getting much smaller than that unless it is turned into a purely streaming device.
I would not hold my breath for codec support without hacking it, or adding non supported files to it without work arounds. Apple will not make it easy for people to ditch iTunes rentals/purchases in favor of downloading shows/movies off the internet in HD codecs for free.