Ditto, I got a great deal on a 40GB tv, and at first, with music, podcasts, and pictures the storage space was adequate. Then came the movies...
I suppose it works out now though. We treat videos as disposable; watch one a few times then take it off the tv's hard drive. We can always stream it from the Macs hard drive with an occasional frame drop or hiccup (though we are running 802.11n and g). I will tell you the 160GB model is mighty attractive at the new price point! Definitely will be getting the larger of the sizes once a version 2.0 is released.
So to sum up answers to your questions:
1.Yes, I kinda regret not getting the 160GB, although, really, shuffling around movies isn't that much a hassle. But now with the new update coming...
2.Yes, you set up what you want synced to your tv, that is what is on your HD. You'll obviously have better performance video wise with that content. Then you can switch back and forth within the UI to what source you want to view content from (ie. the tv HD, your Mac/PC, or the Macbook upstairs). This is how I listen to my music/podcasts and watch pictures/video podcasts (via streaming).
3. Really it all depends on your network. I am currently running a Netgear 802.11n router, which drops to g when every the ol' Powerbook is on. When it is in g, performance is fine, YouTube videos load fast, and movies are great. Like I said earlier, theres the occasional hiccup, but it's really depended on the network at the time.
Lastly, with the new update coming, and the ability to rent movies and purchase music from the tv, I can see where the latter model would come in handy. =)
Hope this helps.