Onkyo TX-NR696 and Apple TV connection causing video and sound issues

Thank you for that explanation. I learned a new thing about Onkyos today.

When connecting as

Apple TV → AV receiver → TV (preferred), then the ARC functionality isn’t used (for Apple TV), and then it wouldn’t make a difference turned on or off (for Apple TV). ARC could still be used for other direct inputs to the TV; then you need to turn on ARC to use receiver speakers in combination with the TV.

When connecting as

Apple TV → TV → AV receiver (or: any input → TV → AV receiver), then the ARC functionality is used.

Depending on TV capabilities (eARC, Dolby MAT passthrough), this configuration may not support Dolby Atmos from Apple TV.

HDMI ARC has been known to cause issues with Apple TV.

Apple TV would be unaware of ARC connections, as it is for the connection between AV receiver and TV, and it shouldn’t cause issues.

It seems that Onkyo has coupled ARC on|off with CEC (for this model, see page 140). If unaware, then that might be perceived as an issue.

I have turned off the HDMI ARC.

What does that mean? HDMI ARC is a designation for the HDMI ports for the connection between your receiver and the TV. There is nothing to turn off.