iTunes 6 was released along with new iPods that support video playback. Included in iTunes 6 is support for video purchases, including TV shows. Unfortunately, the selection of TV shows is small, and they are not available in places like Canada. Unfortunately, the videos are only 320x240, which although (barely) acceptable for now, are only about one quarter (or less) of the resolution of 480p DVD quality video. One can only hope that once this technology matures, internet bandwidth increases, and H.264 decoding speeds of the iPod improve, Apple will offer 480p downloads and the selection of available titles will increase.
Also, as expected, iTunes refuses to manage DivX files, but that shouldn't impact most customers. Unlike the past with MP3 music files, these formats of video files are not that important overall to the general paying public.
The biggest size H.264 videos the iPod can decode is 320x240 at 768 Kbps and 30 fps, hence the 320x240 size limit at the iTunes Store. I hate to say it, but I hope Apple decides to orphan these iPods in a year or two, by releasing a new widescreen iPod line that can decode 720x480 H.264 at 2 Mbps and 30 fps (and resize it in realtime to fit-to-screen), along with video content to match.
I just downloaded the Pixar Luxo Jr. short, and although it was watchable, it definitely wasn't pretty at that low resolution on my 20" iMac.