I'm installing it as I write this, but here's the word from Apple:
All the new features of Apple TV — including movie rentals, a built-in music store, and big-screen access to Flickr photostreams and .Mac Web Galleries — are available now as a free software upgrade. Apple TV automatically checks for new software every week. But if you’d like to upgrade your Apple TV manually, go to the Settings menu and select Update Software. Then just sit back, relax, and enjoy movie rentals and more from the comfort of your couch.
Update. Yikes. That is a looonnnggggg install, with multiple reboots and absolutely zero explanation about what's happening. Nice job, that. (No, not really) A few quick observations about the upgraded experience:
1. There's a new intro video, presumably one that wasn't stolen like the original.
2. The simple new menu system seems logical, pleasant, and attractive. (I had to admit, though, I liked the old one, which was clearly "inspired" by Media Center.) One weirdness of the interface is that, to get to your own movies, you have a lot of work to do: "My Movies" is the last item on the Movies sub-menu. So while there is indeed a focus on movies, it's really on movies you can rent or buy, not movies you already own. This is true of all the menu items, except, go figure, one of them (My Photos). It's not consistent.
3. The update blew away all the movies I had already copied to the device. This is unfortunate, as re-copying them over an 802.11g wireless connection is painful (Curiously, the photos I had synced to the device were still on there. No music. No TV shows. No movies. No podcasts.) Sub-update: It later moved into a streaming mode which shows all my content. Interesting.
4. There appear to be about 75 HD movies available via the iTunes store. (Rent only.) I'll be testing this, of course. There's even a very occasional Closed Captioning (CC). (Ratatoulle is still not closed captioned.) The HD choices are odd: For example, you can rent Star Trek II in HD, but Star Trek I and III-VI are only in standard definition. 2010 is available, but only in HD.
5. I'd like to be able to buy HD movies and sync back to the PC. This works with TV shows (which aren't HD and are, of course, not rented). Weird.
OK, that's it for now... I've rented a few things and need to check them out.