New theory -- the ATV2 wifi connection is (obviously) buggy, but it seems also that wifi does not fully-disable when ethernet is plugged in, which is why it doesn't seem to matter for people whether their units are wireless or not.
My (new) fix was to block the MAC address of my ATV2 on my AirPort network, forcing my ATV2 to have no choice but connect only via ethernet. So far, all my problems have disappeared, regardless of iTunes or OS version.
Here's what I did:
I have the ethernet and wifi MAC addresses of my ATV2 assigned static IP addresses by my DD-WRT router. I run my ATV2 plugged in to ethernet, and my ATV2 reports the correct DHCP IP address assigned to the ethernet port.
On my Mac mini serving up my music library, the ATV2 talks to my iTunes library as "Apple-TV.local", clearly using Bonjour networking to communicate on the network, as evidenced in Little Snitch's Network Monitor. My other computers appear as their static-assigned DNS name, which in this case would be "appletv-en1" if it were not a Bonjour connection. Fine.
So I ran Traceroute (in Applications > Utilities > Network Utility) to reverse-lookup what IP address my Mac thought was on the other end of "apple-tv.local", and it reported two IP addresses at that name.
I really don't think that is normal behavior for Bonjour, so I unplugged the ethernet cable to eliminate that IP address possibility and tested streaming via wifi only. It eventually dropped the connection to my library. So we know wifi is buggy.
I then wanted to try wired-only next, but there appears to be no way to definitively shut off wifi on Apple TV, so instead I blocked the MAC address from my wireless network using AirPort Utility. I just configured "Access Control" with the MAC address and set it to "No Access".
So far, it works. No drops. Naturally, this is bad for anyone who must use wireless, but I'm curious for those who can run wired if this might be something that works in your cases as well.
Message was edited by: balord, did you know you can't write the word that starts with 'S' and rhymes with 'ducks' on here?