You do take out the internal wireless card to install the BCHD chip, but it is possible to use a USB wifi adapter. Tthough to be honest, I haven't gotten this to work yet for myself. However, Crystalbuntu 2 is coming out sometime this year and will make that task (and many others) much easier (from what I hear).
As far as power, the ATV1 is basically a low-powered computer running a custom version of Mac OS X. The processor is an Intel Pentium M, and it can even take a full install of Mac OS X and other OSes. The ATV2 and ATV3, on the other hand, are very different beasts under the hood. For normal ATV software they look the same, but when it comes to hacking them with XBMC they are very different. The ATV2 and ATV3 are basically screen-less iPhones, using the same processor and a modified version of iOS. This is because Apple's interface and video formats never required a lot of power, so they were able to do the same thing as the ATV1 (and more) with the smaller and more scaled down hardware. This is assuming one gets a BCHD, as that is what handles all the video decoding. Without the BCHD, an ATV2/3 will have more abilities for HD video playback, but with the BCHD, the ATV1 plays everything under the sun (ATV2/3 is limited to h.264 only).
There are some people who prefer staying on the original ATV OS, and the BCHD chip works there as well. The big thing you'll see with a linux OS is the 1080 support, lower power usage, and a slightly more responsive GUI. I also hear that it is easier to get a USB WiFi adapter working with the original ATV OS than it is in Linux.
Crystalbuntu can also be ran from a USB stick, leaving the internal ATV1's software alone completely. This is a great option for dual booting, or just giving Crystalbuntu a test drive before making a commitment.
Hulu works on both ATV1 and ATV2 by using BlueCop's XBMC Hulu add-on. ATV1 actually has more potential support, because if Hulu (the company) ever finds a new way to block the XBMC add-on then you can still run the official Hulu Desktop for Linux application on the ATV1 (or even a web browser).
Which leaves Netflix support. If you need Netflix support, go for the ATV2. There might one day be a Linux client (that would then work on the ATV1), but no one has any idea when that will happen, and it could be years, if ever.
The last working version of Boxee for ATV1 is very old and Boxee has decided to stop updating/supporting their computer clients all together and only focus on the Boxee Box. So if you are looking for something that can run Boxee, anything outside of official Boxee hardware will eventually be outdated.
A few other things the ATV1 can do over the ATV2:
•USB support for plugging in hard drives, keyboards, mice, even TV tuners.
•Uses an internal PATA 2.5" HDD that can be upgraded, and even with just 40GB, that's much more internal space than an ATV2 (which basically requires that you use network storage). While most people will use local network storage for both ATV1 and ATV2, it's nice to have a large HDD in the ATV1 if you want to take it to someone's house or vacation.
•Much easier to run things like torrent clients, media managers, web browsers, game emulators, and more from an ATV1.
•Watch live TV with a USB TV Tuner
•Dual boot and install a full copy of Mac OS X 10.5 on it (won't run that fast, but it does work)
•You never have to worry about losing a jailbreak due to a system update, and thus not being able to use XBMC.
•Also has analog audio and video output for special set-ups like older projectors, or an HDMI display + analog speakers.
A few other things the ATV2 has over the ATV1:
•Uses much less power
•Far smaller (not that either is large)
•ATV1s will eventually "dry up", and it will either get harder to get support for them or they'll eventually break, etc. Though I wouldn't expect this to be a big problem for another 2- maybe 4 years, depending on the condition of the ATV.
•Netflix, and who knows what else in the future, will have official client support on ATV2
•While ATV1 does have most
AirPlay (wiki) features (via XBMC), it lacks things like AirPlay mirroring. Since our support for AirPlay comes from reverse engineering, XBMC's support will always be a step behind ATV2.
•If you're okay with just h.264 videos for HD, you don't need to do any hardware modification like you do with the ATV1 to watch HD, and you don't lose internal wireless.
Oh, and the
BCHD (wiki) chip comes in two "flavors": BCM970012 (which can be found as low as $15 on ebay) and the BCM970015 ($40, various places). Click on the
BCHD (wiki) link to see the pros and cons between them. The stuttering mentioned for the 12 isn't a deal breaker (it only lasts for a few seconds and then self-corrects), but if you have the money, go for the 15. Even just a 12 BCHD will give an ATV1 so much new life that you'll never go back to using one without it.
Well, that's what I could think of off the top of my head. Hope that gives you more info