OK, this is the big feature that has had most Apple TV owners salivating over the update. With the new update, you can now rent movies from iTunes Rentals directly from Apple TV. Additionally, Apple TV owners are the only people who can rent from Apple's HD selection.
You can browse through movies by genre, Top Movies (most popular) or through a search list. Once selected, you can decide to rent the movie on the spot. The title will start downloading, and for most standard definition films on a broadband connection start playing immediately.
The new rentals screen in Apple TV
Also new to the Apple TV is the ability to finally (!) purchase content from the iTunes Media store. For television shows, this can be especially convenient from the Apple TV. The process of finding a show is very similar to finding a movie rental. You then have the option of purchasing a single episode or subscribing to the entire season.
If you synch your Apple TV with your Mac or PC, your TV shows will automatically be downloaded to your computer as well, so that you can watch it back from the computer or transfer it to the iPod. That's pretty cool.
Buying a TV show via Apple TV 2
The Apple TV has updated its photo display ability and it can now communicate with .Mac and Flickr. You can view your own pictures, or those of your contacts straight from the screen and choose to play them back to music you have on your Apple TV or connected computer.
You can view your Flickr streams (and streams from friends) via Apple TV
Podcasts and Music
You can watch video podcasts right from the Apple TV and also buy music albums. Like TV shows, these will synch with your Mac or PC if you choose to interface the two devices together
Watch an HD vodcast on your HDTV
All in all, this looks like a pretty nice update. While some of these features probably should have been included last January, it's nice to have them now and that plus iTunes Rentals integration has made the Apple TV a whole lot more attractive.