I owned the original, big, hot, Apple TV and that was definitely not a 5 star product. Limited, energy inefficient, a means to watch rented TV shows (remember that) and a few other things. When the 2nd generation came out I gave my original to my brother and my 2nd and 3rd generation Apple TVs have been happily getting updates ever since as they benefit from being an iOS device with all of the work Apple puts into improving and adding features to iOS devices and the iOS ecosystem.
- Energy efficiency. I have a 30W Intel Atom home theatre PC which overheats and doesn't give as smooth an interface as a 1 W Apple TV.
- Consistent Interface. Apple TV apps/channels all look about the same. You don't have to learn anything switching from Netflix to YouTube.
- Connectivity. I love that the Apple TV comes with Gigabit Ethernet in addition to Wi-fi.
- TOSLink. Not everyone has a HDMI capable receiver, but if you've got a 5.1 speaker setup Apple has you covered with optical sound if needed.
- Basic content like Netflix, YouTube, iTunes purchases.
- Free TV shows, a couple times a week, I go and see what's new in the list of free TV shows. I've ended up buying several shows I like this way, like the series of Mickey Mouse short films.
- Bluetooth Keyboard support. I don't even know where my Apple TV remote is. It's so nice being able to type in searches and passwords from a real keyboard. Any Bluetooth keyboard will do, from a cheap iHome to an actual Apple Bluetooth keyboard.
- iOS remote App. For when you can't find the keyboard or are too lazy to find it.
- Airplay. Here's something I do frequently. I listen to podcasts in the shower on my Airport Express connected shower speaker; I get out of the shower and switch the podcast to the speakers in my basement Apple TV.
- Airplay Video: I use mirroring from my MacBook to get content unavailable on the Apple TV itself, such as MPEG2 streams I recorded off my antenna. When OS X Mavericks comes out this will be even better as the Apple TV will come up as 2nd separate non-mirrored monitor.
- PhotoStream. Yes. My wife takes a picture on her phone and it magically appears on the Apple TV's screen saver.
- More content: Separate apps for the NBA, trailers, Japanese anime, MLB, Flickr... Plus services I don't have access to without a cable plan like HBO, or things I wouldn't pay for like Hulu.
- 3rd party app support. As I said, the support for Amazon Prime videos via Airplay pushed me over the edge from 4 to 5 stars.
- 720p and then 1080p video. There isn't a huge difference between the two if your TV has a good scaler, but it blows away the video quality from before Apple started streaming HD. I had to upgrade my Internet connection to use it, but it's been worth it. Compare with the horrible "digital downloads" that you redeem in iTunes from many Blu-rays.
So, it snuck up on me. This little Apple hobby has become a great product.