Can you use an external HDD with ATV?

is it possible to connect an external hard drive to the Apple TV and save and play files off of it?

Not without hacking the Apple TV. No publicly available USB device is officially supported for usage with the Apple TV.

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Nope, I stream my content to my ATV off a USB hard drive. The trick is to hold down the Option key when dragging content to the iTunes Library and iTunes will leave the content on the external drive. From there, just stream to the ATV.