Last year when Steve Jobs announced Apple TV at Macworld 2007, I wasn't impressed. I expressed my displeasure at the fact that the media was basically giving a free pass to a product that I predicted would be an overpriced failure. My words provoked the wrath of many angry, defensive Apple-lovers. But Apple TV was a failure, and by Macworld 2008 Jobs admitted that the company's expensive "hobby" had failed to catch on. He said, "It's not what people really wanted… So we're back with Apple TV, take 2."

Apple TV 2.0 allows direct downloads from the Internet, Amazon Unbox-style, meaning no computer required. iTunes now offers movie rentals. In addition, Apple TV is less expensive than it was last year and includes cute new features like Flickr compatibility. But will it be the little white box that convinces people to give up their DVD players the way the iPod made them ditch their Discmen? In a word, no. Follow the Continue link to read where Apple messed up this time.

It's no exaggeration to say the restrictions on new iTunes and Apple TV content are confusing. Just check out this chart. It shows that while you can purchase SD movies from the Apple TV, you can't purchase HD ones. On the other hand, if you rent SD or HD content on your Apple TV, you can't transfer it to your iPod. And when you browse the iTunes movie store it's nearly impossible to predict what movies will be for rental and what will only be available to purchase — there's surprisingly little overlap. No particular restriction is a deal-breaker, but put together, they make for a system that's hard to understand.

With Apple TV 2.0, Apple has mucked up its reputation for having a simple interface with fine print that few potential buyers will take the time to try to figure out. They'll just take the restrictions as a sign that it's still too early to commit to this convoluted digital stuff. While instant gratification is convenient, draconian rules are not. That iTunes only has 1,000 films to Netflix's 90,000 is another very noticeable shortcoming.

Last year I complained that Apple was leaving out more than 50% of its potential customers by making Apple TV for widescreen-TV owners only, leaving old-school square-TV users to fend for themselves. That's still true, and while far more people own widescreen HDTVs this year than last year there are still millions out there with square televisions. Apple TV's clearly not for them.

But is it for high-end users, early adopters who have spent thousands of dollars on their 42-inch+ plasmas and LCDs? Not really. Apple's promising those customers a limited number of HD movie rentals (none for purchase) at 720p resolution. We can argue all day about whether 1080p images are really better than 720p, but it's clear that users who purchase the most expensive gear do care. Meanwhile, all of iTunes television downloads are in SD, even though most conventional TV shows come in HD for free over the airwaves. This means that if I purchase an episode of Lost on Apple TV it won't even be the right shape for my television, never mind as high quality as an HD broadcast.

All this is to explain that Apple TV has no obvious audience: the box is not made for cheap TVs, but iTunes isn't ready yet to deliver on image quality for expensive ones either.

To clear up my own questions about TV-download boxes, I compared the offerings of Vudu, Apple TV, and Amazon Unbox on TiVo. While Apple TV does come off as a little expensive, it's by no means a clear loser among its rivals. Vudu won't let you take any content off its boxes, and Amazon Unbox cuts out Mac users completely. All three companies must contend with stubborn studio executives who supply content at the rate and consistency of an old, leaky faucet— it's not like Apple wants to have such a limited and restricted selection of movies.

In a recent interview Bill Gates said that what he admires about Apple is that it can introduce fully "polished" products with great "usability." I agree. Which is why Apple TV has remained such a surprise to me: Jobs's goal with Apple TV 2.0 was to make the product more intuitive and easier to use, but it's not at all clear that he has. It may turn out that the product works beautifully (our reviewer loved v. 1.0), but with no ideal audience and such a small variety of DRM-strapped content v 2.0 seems about as likely to go mainstream and introduce downloadable content into the country's living rooms as last year's model.

In order to achieve its goals, Apple TV needs to do three things. First, it should provide rental and purchasing options whose price and availability are easy to predict in files that are simple to transport. Second, it needs to "just work" with the TVs that are out there, offering both the best HD and upconverted files for widescreen HDTVs while feeding standard-def video to the square ones. And finally, Apple, I'll repeat a question I asked last year: You ship laptops with AC adapters. Would it kill you to include cables with Apple TV so it works out of the box?