iOS 5 enables 1080p output.
This fall Apple seems to finally adopt full HD in iTunes and iOS devices. 9to5Mac reports that iOS 5 beta has 1080p video support. Obviously it does not bring much in terms of image quality to watch 1080p movies on the iPad or iPhone, but on the Apple TV it makes perfect sense. The current Apple TV 2 only supports 720p output. It is save to assume that Apple will release a new A5 based Apple TV 3 this Fall. The A4 CPU in the current Apple TV is actually able to process 1080p video, but it only outputs 720p. Apple would also need to upgrade the HD offering in iTunes to 1080p to provide full value.
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The Apple TV is becoming the most powerful iPad accessory. AirPlay and the new AirPlay Mirroring featured in iOS 5 let iPad owners use their TV as second large display for watching movies and game play. Who would have thought that Apple TV adoption would be driven by tablets.