Peter, as you can guess I really like the AppleTV products, but will criticise them too.
I think they should be far more succesful than they actually are or were (for ATV1). This is largely due to them completely failing to do 'obvious things' many customers want - those are the customers who do not want to buy into the Apple ecosystem hook, line and sinker.
It also partly boils down to the expectation that everyone buys all their media from iTunes Store.
The original AppleTV was revolutionary, and had no commercial itunes store tie in as such until 'Take Two software' which had the iTunes store in your face at every turn.
The interface has always tended to be quite slick, but it is looking jaded on many fronts.
The main complaints about it I would suggest are:
1 - Limited video format support (geared to iTunes Store formats for video)
2 - Inability to access DLNA servers or network storage folders without iTunes acting as helper.
3 - Lack of 1080p - I'm not convinced it's always essential but clearly fits with itunes HD quality - the average consumer however has been brainwashed to believe 1080p is the only HD format that matters.
4 - Lack of ability to connect local storage and need for iTunes for AppleTV2 or to stream content not synced to AppleTV1.
5 - All the miscellaneous wants of browser/apps/games/time/weather/effect visualisers etc.
There are undoubtedly more. I know several people who might have bought one but it doesn't tick the right boxes for them and things like WD Live devices, Boxee Box, Popcorn Hour etc are more suited to their needs.
My own concern about AppleTV is that it's becoming more of an iOS accessory than a true media playback device - while Airplay/mirroring etc are ok in concept you'll see form many posts that it's not always great in practice.
We all want slightly different things, but I personally want a capable media player foremost and gimmicks second. If itunes is needed ok, but it would be far more flexible if it was optional and media could be directly accessed from local storage or network.
Anyhow, I'm sure you know the links but in case not send feedback about how it doesn't suit your family's needs:
http://www.apple.com/feedback/appletv.html