What's Wrong with AppleTV?

I bought my AppleTV a little over a year ago.  Using my tax refund leftovers, I picked up a Vizio 42-inch TV on that same fateful trip to Sam's Club.  It was pretty cool at the time.  I remember thinking how nice it was to explore things on the big screen, even music and pictures, all fed over the wireless from my home server.

But over time, and even following the Take 2 update, I began to lose my interest in it.  So did the kids.  There are a lot of cool features in AppleTV, but Apple really could have made it much better with a little work.  Very little.

I'll enumerate the pitfalls:

1. You can't play anything over the network.  It has to be synchronized first.  Movies are God-awful slow to synchronize.
2. You can only rent and play movies online from iTunes.  Not a surprise.  But this is a limitation.
3. You can only play ONE video format (H.264) and only if it is encoded for the 720p format it requires.  No AVI, WMV, XVid, DivX, MOV, or Flash content either.
4. You can't surf the web on it.
5. You can't expand the storage on it.  EVER.  You have to buy a new model.
6. The external USB port is useless.  Unless you hack the firmware.
7. It overheats and locks up.  Yep.  It's pretty common to have to unplug it to cool off and then start it back up.
8. No games
9. No customization
10. YouTube services are filtered.  You do not get the full, unrestricted capabilities you get from going to the web site in a browser.
11. Only FlickR can be linked for extended photo libraries.  Forget PhotoBucket and Picasa.
12. The search heuristics are flaky as hell.  As you drill down, character-by-character, the dynamic results will surprise you at how unrelated they can be.  Google blows them away in this area.
13. I'm too tired to keep on bitchnig

The solution I've chosen was to hook a dusty old Dell desktop up via the VGA connector, running XP SP2 and a Wireless-N adapter.  Oh my God what a difference.  I'm fully aware of Media Center, but I'm not feeling the urge to go there yet.  This setup is working extremely well.  My kids absolutely love it.  When I asked about going back to AppleTV, they all yelled "No!".  I agree.  They should know.  They spent hours and hours with the AppleTV.  Learning it's every nuance and hidden features.

My current rig addresses all of the above limitations, and provides MUCH more.  I have Office applications, network management tools, games, and tons more.  I can sit on the couch and do everything with the wireless mouse and keyboard.  And, wow, Google Earth on a large screen is pretty fun.  So is Quake III.  Someday I'll get an XBox 360 to hook up like everyone else has and that'll be where I retire.

I wonder why Apple hasn't just released a combined Mac Mini + AppleTV + Time Capsule device to address this.  Apple usually thinks farther ahead on such things.  I would think most people would pay $500-$800 for something like that.  A true "media center in-a-box" solution.  And if the USB or Firewire connection would allow you to attach more storage it would be the perfect solution.  Alas, it doesnt' exist.  

I'm not looking to bash Apple here.  After all, nobody else has stepped up to the plate on this either.  You don't see anything from HP, Dell or even Microsoft.  All I've seen are promises and prototypes on Engadget and Boy Genius Report.  So I have to give Apple credit for trying.  But I really wish they would have followed up on AppleTV the way they've followed up on other products.  It had so much potential.  Now it's a bookend on my shelf.