Most Apple products are too expensive for what they are. Nice hardware, very pretty software, but overpriced. But yeah, that's basically what it is. Unless you jailbreak it (and thus void any warranty, risk them bricking it w/ an update, etc), then you can only put stuff on it via iTunes and the AppStore. No Flash, no Java, no scripting languages allowed, etc.
And there are systems like that. Boxee is a great software solution and is coming out w/ hardware that runs it. There's a couple other similar devices around. Add in Netflix streaming and Hulu desktop and you have a pretty decent solution.