what is the purpose of the hard drive on apple tv

only the 1st generation ATV has a hard drive.

the purpose is that you can sync content to it and then play the content without your computer running.

the 2nd generation ATV requires that iTunes on a computer is running in order to stream content to it.

set up ATV 1 for syncing, then choose the content to sync in iTunes.

this support article may help: http://support.apple.com/kb/HT1143

It also means you can take AppleTV somewhere and play the synced media without the need for a connected itunes library.

It allows you to browse and purchase content directly on AppleTV, which then reverse syncs to iTunes. You can't do this on the new unit.

If you have a slow connection it's better for rentals - AppleTV2 only hold rental downloads temporarily - they get wiped by other AppleTV actions undpredictably and need to be redownloaded whereas AppleTV1 will keep the rental until it's rental/view period expires or you manually delete it. Very frustrating when you're told it's 40 mins to start watching a movie, watch part, use AppleTV for something else (say Mrs AC falls asleep during film) then the next day have to go through the 40 min wait to start watching from where Mrs AC fell asleep!

Most important thing to stress is that AppleTV IS NOT A BACKUP - other than one time reverse syncs of purchases to iTunes, there is no official way to get content off AppleTV to iTunes or a computer - do not delete stuff from iTunes because it's synced to AppleTV. Ensure there's a copy in iTunes AND a backup elsewhere for any itunes purchases.

AC

It may also be part of the reason why you can use iTunes LP and iTunes Extra content on AppleTV 1 and not AppleTV 2 currently - it's probably mainly down to AppleTV2 using iOS rather than the hard drive in AppleTv 1 but it may have made implementing it on ATV1 easier.

AC