The new iPods need to authenticate their dock before they can output video... ...and iTunes seems to have "RentalMovie" as a keycode for some of its problem reports.
This is one of those things that DRM lets them do. One of the use cases that opens the door for DRM in reasonable people's minds. 'cause you really really can't do rentals without it, unless you go by the honor system.
It's one of those moral conundrums associated with being a geek today. Yay or boo?