Really? Why is that a big deal? I personally kind of like that all of my "local" media is now in one place, and not scattered across multiple tabs.
It's a big deal if you rely on local content for anything other than occasional use, because now movies are scattered across multiple tabs (one of them 4-5 menu options deep), and TV shows are scattered across multiple tabs (one of them 4-5 menu options deep).
Think about it - how intuitive would you find it to use an iPod, and have to jump back and forth (a few menu clicks back, a few clicks over, 5 menu clicks down), just to switch between a song from iTunes, and a song that's off one of your CDs.
This is similarly awkward - movies are movies, regardless of where you get them from, and they shouldn't be split up in different areas. *Especially* given that the current/previous model has a "My Movies" option that gets automatically added if it sees you have local content - which means Apple made a conscious choice to take that feature out, and basically relegated local content to sleeping in the barn.
It was a stupid design choice - it would have cost them nothing to leave it alone, and make the device work intuitively for *both* rental and local content, but instead they've said "you're either renting everything or this device isn't for you". Intentionally crippling it just forces that user base to find an alternative...a shame, because that user base may have only rented 50% (or 20%, or 10%) of their content, but now they'll get it somewhere else...and buy someone else's box.