Set-top box movie service Vudu already targets the home theater crowd with its higher end XL offering, but now the company is taking up a notch with the release of the Vudu XL2.

Described as being “designed specifically for professional home theater installations”, the XL2 sports an aluminum case that houses a 1U rack mountable unit, uses the “highest quality components”, and like its XL sibling, features a terabyte of storage — enough to store more than 500 standard definition movies. Other high end features include IP and IR control to allow the XL2 to be integrated into “most high-end home control systems”, along with 1080i HD output over component, and the ability to route and switch HD signals through the home with the use of off-the-shelf video switchers. The result, says Vudu’s Tony Miranz, makes the XL2 a home theater installer’s “weapon of choice”. At a premium price, of course.

The Vudu XL2 will be listed at $1,299 and is available today exclusively through more than 1,000 Vudu-certified custom installers, says the company.

It’s interesting to see Vudu continue to pursue the high end home theater market, a natural fit, in terms of the company’s recent focus on HD content. It also helps to differentiate Vudu’s offering, on a hardware level at least, from competitors such as TiVo, Apple and Microsoft. But does that make it the right strategy?

Set-top box movie service Vudu is claiming to offer more High Definition content than any of its competitors — Apple TV, Netflix, XBox 360, and even Blu-Ray itself — reports CNet. And while content is mostly King, I’m still unsure about the company’s business model.

From CNet:

Indeed, a quick examination of competing services seems to bear out Vudu’s claim. We counted more than 1,100 HD movies available through Vudu’s box (including about 200 that are also offered in Vudu’s Blu-rayesque HDX format), compared to 391 on Xbox Live Marketplace, and something south of 700 on Apple iTunes. (Netflix will be kicking off its own HD streaming service later this month with a mere 300 titles.) By comparison, Amazon’s Blu-ray inventory–i.e. the total number of Blu-rays available–shows a total of close to 2,000 titles, though that includes TV shows and pre-release discs.

However, while Vudu’s catalog clearly beats its Internet set-top box rivals, along with holding its own against the fledgling Bu-ray format, there’s little to distinguish the service in terms of pricing – rentals range from $0.99 to $5.99, and purchased movies range from $4.99 to $19.99.

In fact, when you consider that the Vudu set-top box is a one trick pony compared to most of its direct competitors who also offer various additional functionality, such as gaming or the ability to bridge the gap between the PC and TV, the Vudu proposition appears to deliver a lot less value for money: buy our hardware ($299) so that you can start purchasing our wares. It’s like charging people to enter the store. Instead, Vudu should find a way of giving its set-top box away for free or at least making consumers feel like they’re not paying for the box.

How so?