I'm also interested in what people's experiences are.
As for 720p, it is atv is limited to 24 fps. (Boo!) 30 fps video, for example, doesn't convert well to 24 fps. So if you want 30fps, you need to drop down to 540p.
Just running the numbers.... The 540p atv files should have much more data than standard 640x480 video or DVD quality video. My guess is that it should look better than if you made an iDVD project and ran it through your DVD player, but not as good as 720p stuff.
But this is all a guess on my part. I don't have an atv, but am considering getting one. My home movies are creating a mess around the tv. (This is what happens when you have kids...)