As that other Peter said, yes, it works beautifully as a stand-alone device. Needing to be tethered to a PC would have been a deal-breaker for me as well.
Once hooked up to your network (wired or built-in B/G/N wireless), it shows up exactly like an iPod or iPhone to iTunes. Just like an iPod, you choose what to sync, either everything automatically or you can customize it. Then it syncs.
If you choose not to sync (why?) or it hasn't finished, AppleTV can still see your collection on the PC/Mac and stream the content. But once it's synced, it acts as a stand-alone device. It hooks up to your iTunes online account for renting or purchasing shows. Any movies, music, or TV shows purchased (not rented) on the AppleTV are synced back to your iTunes, and vice-versa. It's really pretty slick.
It took it about 5 hours to sync up about 60GB of content via my 802.11N network. My notebook acts as my primary PC at home, so it has all of my media on it. The sync was all done wirelessly. While the Atheros chipsets in the notebook & router can negotiate up to a 300mb 802.11N connection, the AppleTV could only manage to sync up to 130. Faster than 100mb ethernet, but not as fast as I had hoped. NBD, as the primary big sync only had to happen once.
The AppleTV did lock up twice while it was trying to sync. It would just stop copying, and then a minute or two later the AppleTV would reboot on its own. Then it'd re-establish itself and start copying again from where it left off. Sort of bizzare, but it worked in the end.
Another very cool feature is the free AppleRemote software on my iPhone. From anywhere in my house I can connect to the AppleTV and command it as to which music or video to play. Album art & volume controls too. Very neat to stand in the kitchen and wirelessly change the music in the other room.
