Check this vid of the Akward TV guys hacking an Apple TV to boot of a USB drive. I am hoping that this means you can extend the capacity of the Apple TV without having to open the case. So hopefully I will get to try this out soon :-)
BTW, not sure why they only made the hard drive 40GB... seem pretty small for most folk's music, photos and video. That said some folk have offered a $1000 bounty to allow people to add an external USB drive to store media.
See video below for booting off an external drive...
