The whole idea of taking over the living room and become the digital hub seems to be taking a slight detour from our friends at Apple.

Engadget is reporting knowledge of an effort to finally do away with the Apple TV side hobby and instead replace it with a smaller, more agile device.

According to the Engadget report, this is a device with an estimated street price around $99 that will be about the size of the new iPhone 4. The new A4 CPU and approximately 16GB of flash storage would come standard in the device.

What will be missing from the device is 1080i/p hi-def video capabilities – the unit will only go up to 720p. This isn’t good especially since we current Apple TV and HD TV owners have been spoiled with being able to stream video at full 1080 resolution.

What else is apparently in the works is the introduction of an App Store for this newly branded iTV.

All this is early-stage speculation, but the Engadget folks cited a “trusted source” in their report.

Personally, I’ve owned an Apple TV since day 1 when it was released (I still have the original 40GB model). I’ve been anxiously awaiting something to come to the platform that would be more compelling than streaming my photos and buying movies from the iTunes Store. The possibility of apps would be nice, but going from 1080 down to 720p is a major turn off.

Another possible snag that the folks in Cupertino may have to contend with is a domain registration battle – itv.com is owned by ITV, probably the largest commercial television network in the UK. Good luck with that fight Apple.

What do you think? Does this spark your interest?