I just got my Apple TV, and after spending some time with it, I found it is an anti-climatic gift, but will offer long term enjoyment. I know many people recommend hacking the Apple TV to have many other functions, but I opted for the smaller model since I already have a Mac Mini set up in the bedroom with a Drobo to store all of my music, movies and TV shows.
Setup unfortunately was not as easy as it is with most Apple devices.I found that there is a incompatibility with iTunes 8.1.1 where the Apple TV will only show up if i turn off iTunes sharing. Additionally I am having problems connecting the Apple TV to my Airport Extreme 802.11n router, and had to instead connect it to my slower Airport Express router.
Although the Airport Express is much slower, I found that all my shows and photos finished syncing by the next morning. This is great, and the Apple TV will stay in constant contact with iTunes to sync the latest shows and movies I download. Should you get one? This depends on your budget. For most people, I would actually recommend the Mac Mini over the Apple TV, since you can connect external storage to the Mini without hacking the device. The Apple TV is really for people who already have a PC / Mac that they use to download movies and music on to and they are looking to extend the connection to the TV. It not the perfect solution for everyone, but it turned out to fill a need for me.