Steven,
This is the first mention I've seen of the specific encoder/decoder chip used in the Turbo device. Out of curiosity, did you find this on the web or by inspecting the device itself?
Anyway, I think the key spec is that the chip only supports baseline profile H.264, not the "Main" profile that would produce better compression vs. quality output. IOW, at any given bit rate, baseline encoding won't produce as high a quality output as would the more efficient main profile compression, since the latter can pack more detail into the same bits, so to speak.
For the most part, the baseline profile was intended for low bit rate applications like video conferencing & mobile apps like cell phones or iPods where computational resources are limited.
I would guess that the chip doesn't support custom resolutions higher than D1 -- basically, 720 X 480/576 X 30/25 fps -- although I don't see that specifically mentioned anywhere in the device literature.
Putting it all together, I think the chip is quite suitable for H.264 encoding for iPods but much less so for Apple TV, at least if you want the highest quality it can support. From what I've seen available on the chip market, more suitable hardware encoding for that application is going to require a somewhat more expensive device than the Turbo.