A few questions for those video experts within the forumn...
I purchased an Apple TV as a DVD replacement. I have hundreds of DVD's and want the ability to watch them on demand with no physical media. I have connected my Apple tv to my Sony Bravia LCD TV via an HDMI cable. I'm streaming video from my iMac and external FW800 Hard Drive through an Airport Extreme (.n) base station.
ATV never meant to be, and can not be, a DVD replacement. with no physical media for your hundreds of DVDs? its simply not possible. ATV is too small for that, not to mention any convertion or compression will lose quality of the graphic, may that be H.264 or DivX.