There's a lot of misinformation in this thread
If we review the OP comments, this is not another "which is better" thread. He's talking about jailbreaking, adding the crystalHD card to yield 1080HD playback, etc. Let's try to clarify a few key points...
If his intent is to jailbreak and use software like XBMC on either, then neither is completely done with software updates. Yes, it appears very likely that Apple will not be upgrading the stock software on V1 (version 1) anymore but that doesn't stop the jailbreak software from being upgraded.
Out of the box, V1 is capped at 720p 25fps while V2 is capped at 720p 30fps. However, he's wanting to add the Crystal card, so the real comparison is V1 with 1080HD playback vs. V2 still capped at 720p.
A V1 stock unit is limited to <200GB of internal storage. However, the OP is talking about both replacing the internal drive (which I've done myself to yield a 320GB model and I've seen references for much larger internal upgrade options) AND he's talking about converting the USB port for bigger local storage. That works fine and gives you a couple of terabytes of storage locally if desired (which also means you can store up to "it all" on V1 and turn off the computer).
V2 has a number of Apple-enhanced software offerings like Netflix, MLB, etc which aren't available in V1 Apple software. V2 is considered better hardware though one would have to judge that on UI as the OP is wanting to add the crystalHD card which changes everything about the actual video playback capabilities. V2 has airplay and V1 does not.
On the other hand, with V1 you can load it up with lots of media for a trip and take it with you, while V2 really wants to stream everything (and thus really needs to be at home unless the source computer is also going on that trip with you). V1 also has a few extra jacks which can prove helpful on older HDTVs and especially with receivers that have a zone 2 option (and need analog audio in). Personally, I still like the navigation setup of V1 better than (putting all the personal user media under one "computer" menu) V2 (I wish apple would go back to that navigation scheme: yes, that would mean a few more menus but they are nicely broken out by movies, tv shows, music, podcasts, etc).
Both V1 and V2 can stream from the computer in identical ways. V1 can also sync content on large(r) local storage so the computer doesn't have to be turned on.
If it was straight head-to-head, the weighted advantages probably favors V2. But it's not a head-to-head comparison with what the OP wants to do. I'd recommend carefully considering what's important to him and choosing wisely. Here's a few key benefits:
- If you want 1080HD video, it has to be V1 with the crystalHD card
- if you want Airplay, it has to be V2
- if you want ongoing software updates from Apple, it has to be V2
- if you want local storage of size, V1
- if you want expandable local storage via USB, it is probably V1 (can V2 do this?)
- if you really need 720p 30fps instead of 720p 25fps, it has to be V2 (unless you add the crystalHD card)
- if you need component video or analog audio out for an older HDTV or a zone 2 receiver, V1
- if iCloud functionality is important, V2
TV 2. You can stream anything from your computers to it, so why bother with 100 + GB of internal storage? 
