I have an ATV 3 and I use it mainly to watch content that i have purchased on my iTunes library, like TV shows and some films. I too have Netflix and it works flawlessly. I have ripped a lot of my existing DVD's that I have stored on my MacBook Pro so I can watch those on the ATV using home share in iTunes, this also works brilliantly. I am changing a few things on my computer setup and am hoping to get an iMac soon and a thunderbolt drive of some kinds but am unsure of what to get yet. I also take a lot of movie clips on my iPhone 4 and i watch these on my ATV too using airplay. To be honest for £99 i love the ATV and am glad that i got it.
I used to have o2 home broadband but now have sky but the o2 worked fine with my ATV.