True, it is most likely compressed, but compression does not have to be lossy. Apple tends to use H.264/MPEG-4, which is (or at least can be?) lossless. It would be silly to send uncompressed HD video to the Apple TV when lossless or nearly lossless compression could be used.
The only other thing I can say on the matter is that I was at Macworld today, and they were demoing Apple TV playing an HD movie on a giant screen (probably 50 feet across) and it looked excellent.
Well, h.264 is a fine codec, but just like aac, it offers a range of quality, and better quality means bigger files. I haven't played around with it to see how it handles motion, but I know with DivX/WMV that's always been a big problem. I can't imagine watching an action movie in compressed 720p is going to be anywhere near as good as uncompressed 1080p, but then I also can't imagine most people will know or care about the difference.
You've gone from complaining that the device has super compressed 720p which won't be as good as blue-ray, to claiming that you don't really know what it will look like, but that any compression on 720p video will look worse than uncompressed 1080p.
The facts on blue-ray:
"Discs encoded in MPEG-2 video typically limit content producers to around two hours of high-definition content on a single-layer (25 GB) BD-ROM. The more advanced video codecs (VC-1 and H.264) typically achieve a video runtime twice that of MPEG-2, with comparable quality."
In all likelihood, iTunes is using H.264, or their newest variant. The same as blue-ray. So, in reality, the choice of codec matters a great deal, blue-ray is not uncompressed video (thus, 25GB holds a 2 hour compressed movie), and yes, 1080p is better than 720p.
And it's also worth noting that digital cable, and as far as I know every other on demand HD video service, is also "highly compressed" 720p.
Huh? First you said that uncompressed movies take up about 25gb for 2 hours. Blu-ray movies are generally around 25gb, which leaves the second layer free for extras or whatever.
Then you said that "blue-ray is not uncompressed video (thus, 25GB holds a 2 hour compressed movie)" By your own math they would only take up 12.5ish gb if compressed.
I actually am curious what digital cable uses. It's definitely 720p in my area, and probably compressed, but not highly.
What I said is, Blu-ray movies take up on average 25GB with MPEG2 compression. In other words, your original estimate of the size of things was wrong, as was your implication that blu-ray was uncompressed.
The only other thing I can say on the matter is that I was at Macworld today, and they were demoing Apple TV playing an HD movie on a giant screen (probably 50 feet across) and it looked excellent.