++ as far as tivo's actual DVR functionality.
if pytivo thinks you have an HD Tivo, it won't change the resolution at all (it does transcode to mpeg2). The series3 will scale the video itself (and it has a pretty good scaler chip in my experience).
If it thinks you have a series2, it will change the res, presumably to 640x480 but i haven't checked. Perhaps you misconfigured it so it thought you had a series2.
pytivo tries to detect if your file uses a supported codec (includes ac3), and just copy the audio stream if so; otherwise it transcodes, but the default transcoding target is in fact AC3.
I *have* had problems with 5.1 sound not being properly mixed down to stereo (yeah, yuck, but it's what i had until recently). The center channel was always sent to one speaker or the other. not sure if it's pytivo (ffmpeg really, it does the transcoding) or the tivo that causes this. I haven't really tried to debug it.
it is under active development and the devs seem to pay attention to support requests on the forums, so i'd suggest you give it another shot.
you need to make sure you have a good ffmpeg build. this can be non-trivial; the one that comes with your linux distro may not be good/new enough. the pytivo forums have links to win32 binaries that work for most people. If you're on a mac or bsd, try the ffmpeg-devel port rather than the ffmpeg port.
pytivo recently gained the ability to stream from DVD images. I haven't tested this but i suspect it works fine.
I like pytivo a lot, the only issue i have with it is speed. I have this cpu (1.9GHz dual-core athlon) and it's not fast enough to transcode hi-def in realtime.
you xfer the program and it dribbles through and you can watch it later.
More importantly, i've tried pre-transcoding and just transferring the mpeg-2 stream (pytivo will not transcode this at all), and the tivo (presumably) can't keep up, it still is a bit slower than realtime. That's annoying; i can pre-transcode or buy a faster cpu, but if the streaming just isn't fast enough then i'm kinda stuck. I am using 100Mbit wired ethernet, it's not some crappy wireless that's the issue. I haven't really investigated this.