AP Technology Writer Matthew Fordahl has a thorough review of his experience with a Media Center Extender today.
He describes the benefits well and nails the one big drawback of these devices: They do not work well with wireless 802.11g network connections (although it’s possible that a dedicated 802.11a connection would suffice).
His other criticism, that the extender doesn’t play protected content from HBO and other sources, was true last month but has since been fixed with a downloadable software update. (Update: Ryan, in a comment, notes this isn’t true for Xbox extenders. He’s right. This support page has links to the updates for Linksys and HP extenders and promises that an Xbox update will be available this month.)
Good reading, if you’re thinking of getting one of these things.
Update: I missed the same writer’s longer, more detailed (and generally quite positive) review of HP’s Media Center PC. The good news is that both of these articles will probably appear in a lot of newspapers around the United States and encourage people to take a look at this technology.
Ed Bott 
As far as I know, the problem playing HBO and other restricted content on the XBOX extender still exists. I am not aware of any updates being available for the XBOX extender; I hope there is something soon.