I have only 1st gen ATVs. For me, I do not see a good enough reason to upgrade to 2nd gen units, because the 1st gen does all I need, plus the 2s have some things that are a problem for me.
Contrary to comments above, the 1st gen plays HB 720p encodes of Blu Ray rips perfectly. True, the ATV2 can handle 30fps whereas the ATV1 maxes out at 25fps but, as Blu Ray movies are at 23.976fps, this is not an issue (TV shows often have a frame rate at just under 30fps, but HB can drop this to 24 so it doesn't faze my ATVs). The ATV2 can handle a higher bitrate too, but I have experienced problems on my ATVs on only 2 or 3 films (and can be fixed by backing off the RF factor when encoding).
Also, for me, the ATV1 has the advantage of an analog 2nd audio out connection, as opposed to the 2's digital out. It saves having to buy an adapter to have a separate connection to Zone 2 on my receiver. Obviously, if you don't have a receiver (or one without a 2nd zone) this is moot.
Of what I know of the ATV2, I would say:
Pros: Better CPU; built-in Netflix; possibility of an App Store down the road; smaller and cooler (as in you can't fry eggs on it like the 1st gen).
Cons: No analog audio out and it requires active internet connection to watch even locally stored content (see thread in here about
home sharing issues).