@kglan, i asssume A Person is querying whether the output should be to the TV and the iOS device, or should it be mutually exclusive. I personally feel it should be controllable, for instance, music control with the tv off, obviously requires that the output be on the App. However, as a remote, with the tv on, then it only need be on the TV. However, there are probably cases when it is required to be on both, so best to leave it up to the end user.
With respect to how to implement it, I wonder how well piping the video straight to the App will work, with respect to network connection and the amount of data that is constantly changing and also the processing required inside the App itself. For instance I read the efforts of porting XBMC to a BeagleBoard, and redrawing the GUI when changes happened was a huge problem and required large chunks of CPU time. To this end, the less data transferred the better. So, a better approach might be to look at what controls are required and send events to the App for those controls and uses the native iOS GUI structures.
For instance, my particular need is to control music when the TV is off, so I require to be able to select the music source (NFS, USB, USB-DVD, etc) select a song or playlist (search criteria would be good) and then play a song and have that information displayed in the App. Then simple controls which you already have to skip, repeat etc. This is then a smaller task, as the App can talk directly to the server side and scrub the necessary information directly from the system.
This is just an idea of mine, but would represent how i would tackle the problem for my own use. Will look forward to seeing how you implement it.