What Che (https://discussions.apple.com/thread/2611039?answerId=17845685022#17845685022) has described is in fact the correct method when first setting up an AppleTV.
You can find MORE info about this AND sharing a computer (for streaming purposes only) in the Apple Doc:
"
HOWEVER, the problem I'm seeing defined here is when things have already been set up, then suddenly no longer work. Should this be the case, If you check under "Computers" in the "Settings" menu you will most likely see the name of your iTunes library Greyed out. (see below **)
SHARING a temporary solution)
You CAN set your computer to Share by following instructions in the same doc under the heading:
"How to connect to a shared computer"
HOWEVER, this will not allow you to sync info.
**A (not ideal but effective solution)
If ATV 1 had been working but suddenly 'disappeared" from iTunes sidebar
The following solution will almost surely work to regain your ability to Sync:
- QUIT iTunes
- Select "Computers" from "Settings" Menu.
- Select your "greyed out" iTunes library.
- This will bring up a window named "Disconnect from iTunes"
- You're now given the choice to Cancel, or disconnect. WITH THE WARNING that if you disconnect any content synced with iTunes, will be erased. (in fact it will be removed from your ATV but not your computer)
- Assuming ALL of your media IS on your computer, Go ahead and disconnect.
- Follow instructions in the Apple doc above about setting up your ATV as a paired computer.
- After you ATV gen1 reappears in the sidebar. Reset all your desired syncing preferences,
- Begin syncing.
All will be fine again, (at least till the next time this occurs.) I've had to do this twice this year.
I've read alternate solutions on this board, one involved changing the name of your iTunes Library etc... you may wish to try this first (if it applies) https://discussions.apple.com/thread/3622483?answerId=17943841022#17943841022&ac_cid=142432#17943841
What I'd like to know: What causes this problem... I'm suspecting iTunes updates, or any iTunes database issues or crashes. Or maybe too many visitors connecting to your other Apple devices (ATV 2 for example) or heck the weather in Guatemala...
PS: everyone here should be contacting Apple Feedback at: http://www.apple.com/feedback/itunesapp.html/ (unfortunately there's no current link for ATV ANY GEN) so that perhaps they will come up with a better workaround. Since it's possible they are no longer officially supporting this product, you may also wish to make it clear that problems like this, might make you think twice befor purchasing other Apple devices.