Based on loose speculation of a Apple TV update sometime in the near future:
New Home Screen: It should mimic the iPhone OS home screen. Icons for individual tasks on one page with a row of favorites on the bottom. Less nested menu navigation. (old, ugly, inefficient UI design) Should be easily navigable using the basic Apple Remote and giving icons a glow effect on selection. I envision a status bar along the top showing wifi signal strength, time, and notifications.
Home Screen Icons:
iTunes Store --> Renting/buying content.
Apple Remote --> Streaming content off local network via iTunes
You'd also have the other apps, YouTube, Photos, Settings, etc.
Additional functionality:
Safari: This would largely depend on implementation of the Wii style motion control patent that has been floating around. D-Pad style navigation with the Apple Remote simply wouldn't be usable. Should also support iTunes/MM syncing of bookmarks to avoid having to type URLs in. (Keychains too, on the Mac side at least)
AppStore:
Simple games (remember the motion controller patent?)
Streaming front ends to various services. Probably going to need Flash too. (not a big problem if we stay x86)
Interactive video apps. Kind of a choose your own story sort of thing.
Fantasy sports managers
Lots of stuff no one has ever thought of.
I would imagine the SDK would be fairly similar to the iPhone SDK although obviously targeting a different screen resolution. Being as the iPhone SDK is heavily abstracted from hardware porting apps shouldn't be too difficult. The biggest challenge would be scaling up to a higher resolution display for games -- however the Wii proves you don't really need good graphics to be successful in the gaming industry. Might not be too bad. An important part of this SDK would be promoting iPhone/ATV integration. For example, a Netflix app might allow you to watch a movie onscreen while you browse their catalog on the iPhone and start a new movie or que something. An RPG game might use the iPhone display for an inventory screen. The similarity in APIs would allow developers to write applications that did not depend on the iPhone as an accessory -- simply moving those controls to the AppleTV output. (kinda wonky but it could be made to work)
The obvious question is why would Apple allow competing services onto their hardware? They simply don't have a dominate position in online video -- no streaming presence at all. Unlike the music industry, where they got in early and dominated, they will have to settle with being a platform for other video services. The Apple TV could become one of the first devices that allows various services to pool together in one place. Would you pay $9.99 for the Netflix app? Probably. Would Apple like 30% of it? Yes. Even if it is a one time sale. (better than nothing from Apple's perspective)
Hardware:
Most likely something ATOM based. It's got the best mix of price/performence right now and a pretty good supporting chipset/GPU. (well, good enough for our purposes) I had speculated it might be something NVIDIA/ARM based but it's hard to beat the ATOMs price/performence ratio at this point. OSX is very platform independent so it shouldn't be a major issue targeting ARM and x86 for developers. Obviously the SDKs will have some major differences to deal with no matter what.
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