1uke
As far as the library size is concerned I don't think there's any definite known size limit - I stream from a 500GB external drive without issue, I believe some people have 1TB drives or above.
There seems to be a 4GB single file size limit (yes DVD VOBs are larger unless compressed but it can't play VOBs anyway).
If you think in terms of database size, 1GB of songs will generate 100's of database entries for say MP3s of 3-4MB each, but only 1 entry for a single video of that size - so it may be more dependent on the content mix rather than overall size.
One thing for sure, the larger the number of items, the longer it takes to read the database list from iTunes when you start a streaming session - but it retains the list until the connection with iTunes is broken by one or the other shutting down or network disconnects occur.
Importnat - AppleTV can only playback video encoded in either MP4/h264 with rather stringent encoding parameters. See here:
http://www.apple.com/uk/appletv/specs.html
If you have a massive library of video be aware that converting that to compatible files will take a very long time even on a high end machine, though there are several tools to do so. Less of an issue for audio unless you have incompatible WMA files.
Also be aware that digital 5.1 surround output for movies is not currently supported, being downmixed to 2 channel when encoding with various tools.
It will be interesting to see if there are any upgrades/announcements to AppleTV next week as there is lots of talk of iTunes based movie rentals, though chances are it'll get rolled out in US first.
AppleTV has a brilliant simple interface and streaming works very well, but it really needs better codec support to become a more widely adopted solution - converting video formats is such a chore.
AC