I have two tivo's and recently put together an MCE machine. I think its only a matter of time before MCE type equipment kills Tivo. The big obstacle is cost and possibly a little more maturity.
A few differences:
1. I can do anything with the MCE machine. Music, Movies, Internet, Pictures, Internet, games, etc.
2. Quality is much better on MCE (better connection) than on Tivo. I have one tivo that has component out and the MCE output still looks better. Plus if you do svideo out of the cable box into the mce machine for hd channels they look pretty nice.
3. Extensibility - Nice to add apps that tell you the weather forecast and the like.
4. Flexibility - You can do all sorts of custom play lists and the like.
Pictures
1. My wife's earliest complaint with Tivo was you can't play music and look at pictures at the same time.
2. Quality on pictures is much worse on Tivo (not surprisingly)
For all the flexibility and control, all you need is the price to come down a bit more and I think they will be much more popular. People have not come to the point where they think they need to spend $1k on a computer for the living room. Let the price drop a bit and let them become more prevalent and I think you will start to see them all over the place. Look at sunday paper adds, how many MCE machines do you see in Best Buy? It's increasing...