The problem is most if not all games on iOS rely on touch controls, and transferring that control across to a portable controller isn't easy ... although a portable touchpad might be the way to go.

No storage. Where is the AppleTV supposed to keep the gigabytes needed to run some of these titles? Is it going to stream off the cloud every time you run it?

yes, it would have to be a new Apple-TV with at least some more local storage. the current models have 8GB, I think. tweaking that up to 128GB or 256GB would open up a lot of possibilities without making a $199 price-point impossible. but hey, what do i know.

another friend had a similar complaint: graphics and how there isn't a fan.

these are not the things to focus on. add some hard drive space, better graphics, and a fan, and whatever else "stands in their way", and they could kill it. all of that's implied.

i personally think you'd also need a really good/new controller, but fundamentally i agree. i would develop for such a console in a heart.beat.