The Apple TV loses the spec war to competitors like the Xbox 360 and Vudu, which both offer 1080p streaming-video options, the reality is that higher resolution doesn't necessarily mean better image quality. The fact that the Apple TV doesn't support 1080p video doesn't matter.sports a new design, Netflix streaming, and low price, but like the old model, Apple's streaming video box is still limited to 720p content. While that means the
When it comes to streaming video, bit rate is much more important than resolution. Video bit rate basically states how much information is being used to create the video, and in general, the more information the better. (There are differences between different video compression formats, but bit rate is still a good general indicator of image quality.)
You can upscale a low-quality, low-bit-rate YouTube video to 1080p resolution, but it's still going to look just as blocky, even though it's technically 1080p. Since services like Netflix, Vudu, and Amazon VOD typically don't disclose the bit rate of their streaming movies; the only way to tell which has better image quality is to actually look at the videos and compare.
Even if services were using relatively high bit rate 720p and 1080p video files, we wouldn't necessarily be concerned about the difference in resolution. The difference between 720p and 1080p content just isn't that noticeable on a standard-sized HDTV (50 inches of less) at a regular seating distance. Unless you've got a huge HDTV or a projector, high-quality 720p content is generally going to look just as good as high-quality 1080p content. Major networks like ABC, ESPN, and Fox all use 720p resolution for their HD television shows and can look excellent. (As long as your service provider isn't further compressing them.)
The bottom line is that 720p is plenty of resolution for excellent-looking streaming video. We won't be able to tell how good the Apple TV's streaming video quality is until we do a hands-on review, but nobody should shy away from the new Apple TV because it's "just" 720p.