I think what Hobe is trying to say that until we have a box that can do 1080p, how can we have content on iTunes that is in 1080p?
I agree with Hobe. The hardware has to come first.
I am waiting for a new Apple TV, but I'm not going to wait much longer. There are plenty of better options out there than the current Apple TV, and if Apple doesn't realize this then I guess they are giving up on the living room.
That's right GSX.
Suppose that I'm a forward-thinking Studio Exec (I know, I know: is there such a thing? Let's assume I'm one just for fun) noticing that this digital download business offers some potential to make money. Apple's cut of those movies is a lot less than Walmart's cut to sell it for my Studio on a plastic disc, plus we have to pay for creating the disc, the packaging, the shipping, and so on. So, let's give this digital distribution a real try.
Doesn't Apple have an

TV? Let's test BD-like resolution & quality for that device and see if we can make some money.
"Um,

TV can't play back 1080p".
So I can't even find out if people will buy 1080p

TV content via iTunes. It's IMPOSSIBLE to test the market for it.
Similarly, it's IMPOSSIBLE to gauge the impact of 1080p downloads on the existing broadband infrastructure, because I can't test the impact of even ONE 1080p digital download to

TV owners in the wild.
So I, as the Studio Exec, give up on the concept of even trying with Apple. I wonder if Netflix's box could let me test? I wonder if various others will let me test. I wonder if the networked TVs can let me test? I'm interested in making money from other sources, and I'd like to see what I can do with BD-like quality via digital distribution.
And the living room slowly slides to the other players who already have such capabilities (some for quite a long time now). I (the consumer now) want Apple to win the living room. They're still winning with this little box in terms of UI. I think the

TV I already own is fantastic. But it would take so little to knock out its ONE most glaring weak spot.
And those who believe it is solely about selling iTunes content- not about my own content- seem to be ignoring the iPhoto connection, Podcasts & Vodcasts, radio, (my ripped) CD music, (my Elgato'd) TV Shows, (my) DVD movies converted, YouTube, etc. I've had it- and loved it- for about 3+ years now and maybe spent $25 on iTunes content, yet used it almost every day.
It's a whole lot more than an iTunes store front end right out of the box. As such, it should finish the job it started and step up with the hardware platform enhancement that would make it great for probably a decade or two to come (1080p will likely be the standard for at least 10+ years).