That is what I am thinking too Chris. There is no way Google would allow the competition to have the upper hand on such an easy feature to implement. I'm still hanging onto the hope that Google has a plan to allow local content, more than likely through an updated official Gallery app.
What I can't understand is that all the Google sympathizers keep saying, "Google can't allow local content (photos/home movies) because it opens up for the possibility of users using it in a manner that breaks contracts Google has with the media companies". This arguments seems null considering that Apple TV (and Xbox, PS3, Roku, etc) already does it, and more. Why would Google be the only company that is not allowed ... the argument just does not make sense.
I think it may be more about Google coercing users into sharing their meta data for targeted advertising by forcing users to upload their images to G+ and their videos to YouTube just to watch them on their TV. If so, then Google may have just made a horrible move.