...I feel you need to make it clear that Chumby does not accomodate this usage, particularly if you are going to use an established term such as "digital photo frame" to describe the functionality.
3) Chumby requires a wifi connection to the net to do virtually everything. This is a relatively new and unfamiliar model that most people aren't going to understand right away. I think when you tout the online aspects of Chumby, they may come across as "value added" - extra features the competition isn't offering - as opposed to a totally different way of doing things. When you say it plays music or shows photos, then give examples of doing so online, I think that the ability to do so offline is going to be taken as a given by some.
What is a Chumby? section
"Plug it in, connect to your wireless network, and use your computer to choose a playlist of "widgets" (the bite-sized applications that run on a chumby). And if, say, you want to see news, the surf report, and traffic in the morning, and animations, web cams and eBay auctions at night, you can group widgets in "channels.""
This would be a good, logical and fair place to acknowledge the ad widgets. Instead, choice is emphasized and it is implied that one can fully control their channels.
"Chumby Network" section
"It's paid for by Chumby Industries and by sponsor companies who will be sending you widgets such as..."
This does not communicate clearly that the ad widgets are a mandatory part of all of your channels.
"When you use a chumby, you choose what shows up on it."
This specifically suggests that if the user didn't like the ad widgets, they could avoid seeing them in their channels. Not so.