I don't think the XBOX is the best example of an all in one box for TV...
However, the Sony Playstation 3 is. The machine has wireless connectivity, HDMI out standard, Blu Ray capabilities, one of the best upconverters on the market for DVD on the market. USB support, internet browser, netflix connectivity, many other market shares including NHL Center Ice, MLB Baseball, NFL, Movie Rentals, streaming music, photo connectivity, and many programs to allow the device to see your computer.
then you have the gaming aspect. Add to that the ability for remotes, Playstation 7.1 headphones, keyboards... The list goes on and on.
If the Apple TV had Netflix, iTunes sync and allowed internet it would be more of a complete usable system.
I think the iTV will be just that. Netflix, iOS apps, iPhone/iPod touch remote capable, 1080p with airplay coming from your iPhone, iPad and the mac. I can see the ability to airplay things like keynote, imovie and other programs being a cool feature. Not to mention, I can see the app store appearing, and allowing things like games (angry birds, etc) to be bought and played on the TV. I can see the ability to open all types of cloud based content from pages, to keynote, to music, pictures, videos, apps... It all makes sense.
We'll see though. If they were smart, I would make the iTunes account in the TV allow for you to scan previously purchased DVDs using your mac, and allow access to your movies you already own, with no extra cost and at full 1080p quality (if available). This would allow anyone with a broken disc (kids) or to have a digital backup, without taking up computer disk space... Do it in the cloud.