Apple isn't turning the AppleTV into a Tivo killer because they don't want to kill Tivo by supplanting it. They want to kill Tivo by suffocating it - destroying the market that Tivo competes in by supplanting the products that Tivo complements. Apple wants cable TV to die, and be replaced by on-demand video over the Internet (obviously, there preference of provider is iTunes). To some extent, this is inevitable: coax bandwidth is more valuable to cable providers when it is used for high-speed internet than for channels that are seldom watched. Given sufficient competitive pressures, cable providers will allocate less and less bandwidth to QAM and more to DOCSIS. Most likely, they will end up with relatively few channels provided over QAM, and all optional and premium content provided on-demand over IP. At this point, if Net Neutrality is in effect, Apple will be able to easily compete against and dominate the market for premium channels, because no cable company is going to come up with a solution that sucks less than whatever Apple has at the time. The complete death of traditional cable TV could follow if basic cable content can be made available over the internet without too much trouble for Apple or consumers.
In other words, the Apple TV is stagnant because the market it is intended for isn't big enough yet. Apple is taking the time to refine it as a low-priority project so that they will be ready to make the the killer product as soon as the market is ready.