The definition of irony:
The Apple Support guys gave up on me at the weekend and recommended I take the whole kit & kaboodle to the Apple Store. The made an appointment for me for Monday evening. I packed up the desktop, apple tv & airpor extreme. Due to personal commitments, I had to reschedule for tonight.
I went in there tonight with a Factory restored Apple TV, reinstalled iTunes 7.5 in front of them with a new user / new library, and proceeded to demonstrate this issue with the 'Free song of the day', as well as by importing some of my own content.
The Geniuses were completely stumped. I was able to demo that non DRM content sync'd and streamed fine - but that DRM content failed miserably.
This is where the fact I went tonight rather than last night became important: on a whim we let iTunes automatically upgrade to 7.6.
Guess what happened next? The 'not authorized' message disappeared. The content started to sync. It streamed.
I shut down iTunes I replaced my 100GB itunes library into the correct location, restarted itunes with 7.6 running - and now everything WORKS!
After 3 months, my Apple TV is sync'ing and streaming my purchased content.... and despite Apple Support's insistence this was a network issue, tonight, in an Apple store, wth all my same equipment, we conclusively proved it was an iTunes issue. The only thing that changed from house to store was: 1. DHCP server (my Airport Extreme into their wan rather than into my ADSL modem) and 2. iTunes 7.6 - which cunningly enough became available today?
Fortuitous timing. I'll be writing a nasty gram to apple support for all the hoops I've jumped through, and requesting an extension of my support on my apple tv - but I am very, very happy to put this one to bed!