Use it, and it's okay.
"Apple’s control-freak tendencies mean that iOS devices only play Apple’s preferred MP4 video format"
So control freaky that you can download the free VLC app from the App Store and play pretty much any format you want -- even all those poor quality AVI and DivXs you 'aquired' somewhere!
I bought Air Video a year or so ago, and have found it moderately useful -- the good thing is you don't have to carry your video everywhere with you, the downside is you have to have your Mac on, and it only really works over a local network.
I haven't really bothered with the transcoding as all my video (mostly DVD rips) are already in .m4v H.264. Let's face it, H.264 is basically the best codec, and I see no reason to mess around with containers such as MKV (why it's so popular in certain torrenty parts of the Internets is beyond me). Maybe there's just something I don't get.
@Alex Walsh: I tried Orb before getting Air Video, and found it to be a little unreliable (I wasn't bothered about the music bit of it either). YMMV, however.
What I'd like to see is a NAS box that can offer AirPlay streaming as a source. At least AirPlay works, unlike the mess that is DNLA.