There have been a number of reports in the media about the failure of the Apple TV. While right, none of them have correctly identified the problem. Namely the DMCA.
The DMCA makes it illegal to break an encryption key used to protect copyrighted content. In plain english, while Apple can ship iTunes with the ability to rip CDs, they can’t, by law, add the ability to rip DVDs to iTunes.
There is no technical challenge to ripping DVDs, any more than CDs. It’s simply that they would be breaking the law.
Absent the ability to rip DVDs, the only use for Apple TV is to buy movies from the iTunes Store.