Well, I was going to walk away from this one... forum battles are kinda lame in an "I'm winning at the Internet!" way.
But in the interest of actually helping people solve their problems: I apologize if you took my tone to be "hostile", that certainly wasn't my intention. Nor am I an expert, but Always Wondering had solved his problem before the Dolby suggestion.
The Dolby setting is not a solution so much as a work-around; like putting the temporary spare tire on your car. Yes you can still drive, but you have to make compromises and it's not the intended operation. Same with the AppleTV; the proper operation is that the CC works regardless of the Dolby settings. As we see with temporary spare tires, some people are happy with the work-around and aren't interested in an actual solution, and if that's good for you, then it's good for me.
The AppleTV is nicely a closed system (you can't install apps, load personal files, etc.) which makes problems with the device either an issue of settings, software or hardware. And Netflix is contacted directly from the AppleTV, which probably removes issues related to your computer or network (certainly not the case with the 34-page Home Sharing Dropout thread).
Settings are an easy one to check: is CC on? So next is software. The closed nature of the AppleTV also makes a factory reset a fairly painless task (compare that with doing it to your computer... you would lose everything). It's really a 10 or 15 minute process, so is a really good way to eliminate software issues. I don't work for Apple, but I do make a living troubleshooting and servicing equipment far more complicated than an AppleTV, and a factory reset is usually around step 2 or 3 of trying to convince a misbehaving piece of equipment to play nice again.
Given how painless it is, especially if you are having other small issues (like your AppleTV won't notify you of updates), I certainly encourage anyone with CC problems to try the factory reset. If that doesn't work, then it's probably a hardware issue, which means it's time to call Apple.
Of course it's not the only solution, but it doesn't hurt to try. I really don't think it's a software bug, most people aren't having any issues and therefore aren't posting in this thread. But, I wouldn't be too surprised if I was wrong.
