Would it be possible just to remove the HDD (or just format it and use it for general storage) and have it network boot?
Short answer: yes, kinda.
Removing the HDD is about the only way to install Linux on AppleTV.
If you happen to already have a copy of the (proprietary) Apple binary bootloader that is present on the AppleTV HDD, you can make a bootable USB drive and do it without voiding the warranty.
The onboard IR receiver works well enough (the only remote I can get working is the Apple remote). Analog and optical audio work. HDMI, Component and (yes) Composite video output and XvMC work with proprietary nVidia drivers.
Edit: removed garbage