We've shown you how to convert your video for your Apple TV ahead of time and on the fly, but if you're still not satisfied and want to play practically any video format, you can jailbreak your device and install Plex.
This is not a hack for the faint of heart. It's not terribly difficult, as the above video illustrates, but it is error prone. Fortunately, the same fellows over at iPhoneBlogr have put together solutions for common errors should you run into any. That said, you should know that jailbreaking your Apple TV could— theoretically —cause it to be consumed by raging hellfire. We've all been there, right? No? So now you've been warned.
If you want to risk bricking your Apple TV (which, in reality, seems pretty unlikely) and are comfortable rooting around your device via SSH, here's the process to follow:
Jailbreak your Apple TV, which you can do using PwnageTool or alternate methods.
Download and install Plex Server on your Mac OS X laptop or desktop.
Install the Plex Client on your Apple TV using these instructions.
Once your done you'll be able to stream videos to your Apple TV's new Plex client via the Plex server on your Mac OS X computer. It's a little buggy at the moment, but should improve with time. Hopefully this is a sign of great things to come on jailbroken Apple TV devices.
How to Install Plex Onto Apple TV 2G - Plat Almost Any Video File Type - Video Tutorial [iPhoneBlogr via Unplggd]