Why should I purchase Apple TV?

Currently looking at several options on a 'Media Center' solution and I need some input on Apple TV.
Some questions I have:
1. Are you locked into only buying and/or playing Apple proprietary content?
2. Can you plug in a external HD to the Apple TV and have content be played/pulled from there?
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Recently I have been enlightened to convert all our DVDs into digital, mainly because our kids seem to have a bad habit of playing shows over and over...and unfortunately 'scratching' disks and/or ruining DVD players (we've gone through 3 in the last couple of years...SERIOUS).
Any help that can be provided will greatly appreciated. Thanks in advance.

1 - no - while Apple expects most stuff will be bought via iTunes Store, in practice you can convert any video you have to teh h264 format to play on AppleTV. Note there are tight specs for the encoded video but results can be excellent. Full HD 1080i/p decoding is not supported due to horsepower, but you an get up to 720p at 24fps. The decoded stuff is then upscaled to match your TV. Video transcoding can be quite time consuming.
2 - no you can't attach a drive directly. The USB port has no end-user function. You can however stream live across the network via iTunes any compatible files either on the computer, computer attached drives or NAS, though the more complex the data path the better the network has to be for it to work successfully.
People do convert DVDs for playback on AppleTV but as this may be illegal in many countries it cannot be discussed here.

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