IT MAY NOW BE WORKING! Having spent several hours reading this and other posts, and trying various recommendations, Netflix performance on my ATV is now much better. Perhaps it's even working properly - but only time will tell. Here's what I did:
1) Received new ATV for Christmas, and immediately upgraded firmware to 4.4.4 and subscribed to Netflix. Started watching a TV series, The Hour, in HD. Experienced pauses often lasting more than 30 seconds. Checked internet speeds at Speakeasy and they were always above 7.5 Mbps download, 450 Kbps upload. These speed tests were on a PC that was wired to the wireless router.
2) Upgraded firmware in my wireless router to latest level, and reset it and the modem. Elliminated all other router connections to be sure there was no contention for the bandwidth. Still having similar pauses.
3) Tried the "Google DNS" recommendation found at: http://www.compunoodle.com/fix-apple-tv-2-netflix-streaming-problems/ Same symptoms.
4) Tried the recommendation of iiisis on 14-Dec-2011 4:36 PM at: https://discussions.apple.com/thread/3092145?start=45&tstart=0 for manually setting DNS to same as my router settings from the ISP. No improvement.
5) HOWEVER, when I removed power from the ATV for a couple of minutes then reconnected, it seemed to go through a reboot sequence and it then worked without pauses for the remaining hour of the movie we were watching. It was still operating fine in a couple of spot checks this morning.
So where was the problem? Which was the solution? Apparently a removal of power and reboot made the difference, but did I need the other changes as well? It will take a few days to determine if it's working fine now, and then a few more to try removing the 2 DNS "fixes" to see if either of them made a difference.
Even if my problem is now completely "solved", I'd hesitate to recommend ATV for Netflix use. It was purchased for recreation, not for a technical challenge. There are other boxes that can run Netflix, access Vimeo, Flickr, etc., listed on the Netflix site.
I'm crossing my fingers and will report back in a week on my results.