The Apple TV, as envisioned by Apple, is truly a very niche market device. You’re basically paying money for something that lets you pay more money to buy or rent music, movies and TV shows from the iTunes store. Sure, you can also stream content from iTunes on a computer, but when trying to stream from a central generic media device, the out of the box software just doesn’t cut it.
It is, however, possible to customize your Apple TV with unauthorized third party software (much like a jailbreak for iPhones/iPod touches) to transform it into a fantastic cheap media player (with certain limitations).
Read how at The Apple Blog