They're not going to be able to produce their own content, so it would amount to selling a network appliance that supports someone else's downloadable content. I wonder who they would partner with.

The Roku box is cheap and would be almost pointless to compete with directly - why offer a better quality unit when the source material is likely to be a limiting factor in many regards? The VUDU service reportedly offers better quality, although there is a higher price tag to go with it. Typically these services are developed with a hardware platform in mind because they are useless otherwise (Apple didn't do much with video in iTunes Music Store until the AppleTV arrived, Netflix didn't do much with their offering until the Roku box was available, and VUDU built their own hardware to support their service).