Interesting. Is that just a particular H.264 setting, as with the "Movie to iPod" setting, or does it seem to do extra work to trigger a transfer?

Well, this partially solves the issue of Apple TV not playing non-Apple formats. But you still have that pain in the butt conversion process. I still want and require codec plug-ins to be swayed by the Apple TV, otherwise, I'm going with a Mac Mini set up. Sad, because I want to like this thing, but not if it's completely dumbed down and strapped to their formats.

Here's hoping that this is the 1280 by 720, 24 fps, Progressive Main Profile setting that with give something close to HD...

Interesting ! It exports H.264 at 960x536 pixels. Selecting 'iPod' exports at 640x357 pixels. That means it's 50% more pixels in each dimension, or twice as many pixels overall. Looks like the Apple TV is going to be able to make good use of those nice HD TVs.

I wonder if this means that higher res movies and TV shows are coming to iTunes - and where does that leave current iPod owners (which can currently only play the smaller size). It's not like Apple to have the user pick between two different options

Wait! The iPod one is 640x357? THAT isn't the native iPod display size... YET! :-D

Sure enough! I just checked it, exporting a full size 16x9 DV iMovie to "iPod" and it outputs a 640x353 pixel, 1636kbits/sec video, 44kHz AAC Stereo audio, m4v H.264 file! I guess we know what size the new iPod screens will be soon huh?!? :-)

Oh, and it is 30 fps too...

But will it encode menus, subtitles, and features? Space is not an issue, and I would like to have my entire DVD accessible and archived.

Someone mentioned too many options? Hmm, I found today that some MP4 video files that I'd created & played fine in QT now won't play in QT 7.1.5 - the audio is OK but the video is just random garbage. But if I import the file to the iTubes library it plays OK. Conversely, I had an MP3 that wouldn't play in iTunes but would in QT - that one turned out to be an odd bitrate. iTube's still not foolproof for homecooked media but I'll concede that it's getting there.

iPod video depends on the content - it is all 640 wide (it changed when they brought out the movies) but the height varies depending on the content and how widescreen it is... It will play on the iPods at a reduced size, but it will output through the video out at the higher resolution.
As for why the Apple TV is 960 and not 1280, that is very curious... my guess is since many HDTVs out there don't really do more than 1024 x 768 resolution, the 960 x 536 does not overshoot the resolution of HDTV sets. For resolutions see here:
http://www.cnet.com/4520-7874_1-5137915-1.html