everything apple is overpriced omg.. seriously you people have noo idea. they dont expect people to bother looking into the apple tv.. so obviously theyre still making a big profit on that little box and a huge profit on every other device. apple can do that, its quite funny
NAND chips aren't used for caching as they degrade and have a finite write life... the 8GB must be for storage. The RAM will be for caching...
I assume that they used the 8gb flash chip because thats what they had available. It was probably cheaper to just use the same 8gb chips from the ipad/iphone/ipod touch than to order different smaller ones. They need somewhere to store the OS, but I wouldn't expect them to use the flash memory for anything but that.
Apple said the iTV will also work on slow internet connections without any lags, so in the worst case they will have to cache almost the entire movie. For HD movies the 256MB RAM will not be enough, so they will have to do some buffering using the NAND. I guess they will try to use the RAM when possible, but also have the ability to cache to NAND if neccessary.