I recently bought a used appletv for this very purpose. I download TV shows and whatever from usenet in xvid or divx format and play them on my appletv. works great.
If you go to awkwardtv they step you thought the process of using a flashdrive to update your system with their goodies. Once flashed, you can enable ssh and file sharing, and download all the necessary extensions/codecs. It's super easy, assuming the box you get has the 1.0 firmware installed.
I just mount my apple tv over a afp share on my desktop and drag and drop the videos into the Movies folder on my AppleTV.
From across the house I transmit at about 2.7MB/sec from an old WRT54G, but that's about twice the speed I get my my Powerbook G4 from the same location.
I tried to play some HD content the other day, and it was choppy. But that might have been because I was transfering it at the same time I was trying to view it. I wasn't very patient with it, so maybe it works, I don't know.
I really like not having to burn discs. I just wish I could power it down without pulling out the plug.