Besides, an Apple TV that doesn't require HD, which would not be that much more effort, would also work for anyone with a TV, so it really doesn't make sense to me to only make this an integrated product.
The Xserve is the only recent example I can think of, and they discontinued that product recently. I'd be surprised if Apple makes a TV.
There were smartphones before the iPhone that seemed similar (or even better) in specs/features.
There were tablets before the iPad.
Apple in entertainment takes old categories and adds a new product/platform that excels along some evaluative dimension(s) that people weren't even previously conscious of – not by simply outdoing the incumbents in the same-old dimensions.
I think there are plenty of ways an iOS/iTV could break the old moulds. Adding basic integration with the iOS ecosystem – docking ports, media sync/backup, iTunes purchases, handhelds as remotes/controllers for big-screen content and games, Facetime – would be plenty to excite the gotta-have-it Apple households for a successful v1 release.
Throw in new voice/gestural controls (as with Kinect) and app APIs that work with live and recorded TV programs – including iAds targeted to individual households. ("This episode is available for $1.99, or with 3 customized-for-you commercials.")
That'd be a new platform for digital TV, bound to Apple/iOS – "fundamentally different" enough for me!
I think Apple are going to stay away from it and instead of pushing computing on a far away screen they are going to do everything to put screens in peoples hands and on their laps. The Apple TV will continue as a way to put your iOS content up on a TV screen (maybe including things like games), but I don't think they'll push an iOS TV Screen device as a big thing on its own.