For the past few days, the technology blogosphere has been buzzing about the upcoming Hulu iPhone app. About the same time, there is a widespread rumor proclaiming full HD output and iTunes streaming from next generation iPhone and iPod touch. It is not difficult to put two and two together, and see the enormous market disruption potential in an iPhone centric living room entertainment solution.

If indeed the new iPhone and iPod touch can support full HD and iTunes streaming, many users may be tempted to purchase Apple’s video output cable to watch content on their HDTV. Some may also want to watch Hulu, TV.com, Joost, and other video serving apps this way as well. For Apple, iPhone and iPod touch would suddenly transform into a killer media center with a formidable install base. For the consumers, the relatively open platform would ensure that they have access to diverse content from various sources. For content providers, this model affords them a direct channel to media consumers, bypassing carriers, cable operators, and other traditional channels (even iTunes Store).

The last point can be a big boost to organizations, big and small, who don’t have direct tie to those media titans. For instance, Big Ten Network could release an app that relays their NCAA games live or on-demand, without involving in protracted negotiations with cable companies. Another example would be performance arts institutions, such as Lincoln Center and Village Vanguard, creating their own apps to broadcast live or recorded performances, rehearsals, and interviews–a new and conceivably substantial revenue stream.

Assuming iPhone/iPod touch is taking over the living room, what would be the raison d’être for AppleTV? The product seems to be a halfhearted effort from Apple, shackled not by technical but copyright and other business considerations. No wonder Gizmodo gleeful declared AppleTV “obsolute” after the iPhone HD rumor surfaced. Let’s not write its obituary just yet.

I believe most users would not want to permanently connect their phone to a TV or a dock. If Apple can support video streaming from iPhone/iPod touch to AppleTV, the latter will effectively become a wireless video breakout box for the former. Imagine browsing Hulu videos using iPhone on your comfortable couch, selecting one with a touch of your finger, and then enjoying the video on your big screen TV. Consumers and content providers alike should be thrilled to see a solution like this. Netflix and other video-on-demand services would certainly be interested as well. But would Apple allow it?

Hopefully the Cupertino company will see that by opening up AppleTV platform they may sell more iPhones and many more AppleTVs. This would translate to more iTunes Store users too. Now, if someone can convince them to also release an API for AppleTV…