I've used this app for several months now, and it's very, very handy. I have a "hacked" Apple TV which can play .avis just fine, as long as the file's embedded within the appropriate wrapper, to fool both iTunes and ATV to play it just fine.
It's getting better and better, but I have two major headaches with it that prevent me from giving it more than three stars. First of all, the Hot Folders feature has never worked for me. I think it's got something to do with my keeping my iTunes folder on an external HD. I can live with that, I don't mind manually queuing up files (although I'd much rather have it done automatically). The biggest drawback for me is that it's just not very good at finding metadata -- that is, the correct names of shows, episode titles, etc. Often it's wrong in what it finds; sometimes hilariously so. It's kind of irritating to be babysitting a conversion process which should run just fine untouched by human hands.
I just figured finding the right info was hard, and I'd just have to put up with it. And then Boxee came along! Boxee does a GREAT job of identifying movie, show, episode information; much much better than VideoDrive. So, I have to wonder, as I yet again change the hilariously misnamed mess VD makes of "House," if Boxee can do it, why can't VideoDrive?