Calm down Steve!
AppleTV 1 had a hard drive and allowed purchases to reside on it and copy back to iTunes.
AppleTV 2 and 3 are smaller/cheaper and do not have any useful storage and therefore can't store copies of multiple items on them - there is supposedly 8GB of memory which is just enough for an HD movie and other uses.
Apple in their wisdom have decided we all have unlimited fast broadband which is not the case for many, myself included.
It's not the greenest option but provided you don't mind playing the video from iTunes on your computer attached to the LAN, this is easily achieved. You enable Home Sharing in iTunes and on AppleTV. Under Computers icon your local iTunes library content is available to select and play. If you have more than one iTunes running you can select the library to use.
Going forward you may want to make any new purchases (or rentals) directly in itunes and provided the computer is on they'll play across the LAN not the internet.
For existing purchases, assuming Apple offer iTunes in teh cloud you should be able to download the existing purchases to itunes on teh computer quite easily.
In iTunes got to the iTunes Store home page with the house icon.
On the far right under Quicklinks go to Purchased, and browse and/or download past purchases. For HD material go to itunes Preferences to select 720p or 1080p as preferred download format. You can download SD if needed.
Apple do have a habit of employing an 'our way only' stance for many things which can irritate. Itunes occasionally delights me, often it frustrates me, especially when it come to issus of manually syncing devices.
There are pros and cons to itunes and getting locked into the ecosystem, trouble is I'm not sure that other options in the future will be much different from any other players in the market.
DRM hinders no one but the fee paying user, limiting what they can or can't do with their purchases. I actually think Apple's rules are fairly liberal here. DRM has little effect on pirates or those who download from torrents etc.
By the way if you rent in iTunes the movie must fully download and will be available under the Computers icon on AppleTV in a new Rentals column for movies.