A present annoyance is that videos you make favourites online that aren't converted to Apple's H.264 codec don't appear on the Apple TV. And, at the moment, there doesn't seem to be any way to identify online which videos have and haven't been converted - so it's a bit of a lottery to find videos unless you're sitting at the Apple TV itself tapping titles in with the remote. However, YouTube claims that all video clips will be converted by August so we can see this problem disappearing over the next two months.
Of course quality is the first concern that most people cite. We've used programs such as VideoDownloader for FireFox and iSquint to rip and convert YouTube video for the iPod (and consequently the Apple TV) and are well aware of how shoddy the video can look on the big screen.
So we were pleasantly surprised to see how good some of the clips looked now that they've been encoded into the H.264 codec. Some of the main clips (on the 'Featured' menu) appear to be running at a much higher resolution than regular YouTube video. We haven't been able to inspect the video yet, but we guess that newer clips are being re-encoded separately at a higher resolution than the Flash video used for older clips.
Of course, that doesn't mean that all the clips are of a high quality, and plenty of the video shows the rough-and-ready look that you'd expect from YouTube. But it hardly matters, the joy of having a world of video to search and play on your TV more than makes up for the fact that some of it looks slightly amatuerish.
YouTube is an amazing addition to the Apple TV, one that changes the nature of the device completely. You certainly can't complain about a lack of content for the device now - and it's ability to sync up to your online account brings the community element of YouTube and all its video where it belongs, in your living room. We expect to update our review and rating of the Apple TV after we have had a more thorough test of the device.