Blockbuster is developing a set top box for streaming of rented movies, according to reports from both The Hollywood Reporter and Reuters. The device would compete head-to-head with the Apple TV and Netflix’s forthcoming set-top box movie streamer that is being built in partnership with LG.

The integration of web services into set top boxes, game consoles, and other devices that connect to the TV and home entertainment systems is increasingly ramping up. So fast, in fact, that just having the ability to rent movies over the Internet may not be enough of a selling feature to get consumers to commit to one device or the other. (And they’ll need to. Does anyone envision many houses with both a Blockbuster and Netflix set top box?)

I suspect that the ways that the companies differentiate their offerings will be the add-on features that are available on them. Add-on features that could include things like photo slideshows and streaming web content such as news and cartoons. In short, services like FrameChannel.

This integration of console, web content, and photo slideshow is already in place on Nintendo’s Wii, through the Wii Photo Channel. I wouldn’t be surprised to see other companies jump on that bandwagon to drive sales.