My set up:
In a nut shellTCL L40FHDF11TA 40-InchWestern Digital WD TV
Funny enough my tv picks it up as 720hd display but will play 1080 Movies just fine.Cables To Go 30504 USB 2.0 to IDE or Serial ATA Drive Adapter
+ Seagate Barracuda Green 2TB
This allows me to have a 2TB external Movie collection and works perfectly.
Optional: Playon Media server + iPod touch Wdtv remote app that allows me to select a movie from my pcs hdd and play it from my wdtv onto my tv.
I just wish there was an app that lets you play external usb videos from your wdtv also but I guess if I wanted to I could just put my hdd into my pcs usb port and stream it through playon and wdtv.
Still a pretty sweet set up.