For everyone fighting with the Netflix streaming issue, you are not crazy or alone. I have a 100Meg connection, yes 100Mbps, and I still have problems. First step, hard code an IP On your AppleTV. There is an issue with DHCP, don't ask me what that problem is, I'm a network guy not software and like they say "If it's not on fire, it is a software problem".
I tried everything, including stripping my network right down, testing Netflix on the Wii, XBox, 3 different computers (2 Macs and a PC), an iPhone, an iPad, a Samsung Bluray player, a Boxee Box and finally the Apple TV. All performed perfectly fine with no buffering/pausing issues except the AppleTV. Being a total idiot, I was not content to simply use a device that worked, I insisted on making the AppleTV work. After changing wiring, wireless routers, numerous configurations, testing, etc etc etc.
I narrowed the issue down to primarily SD content. Most movies in HD would start up play fine, occasionally I might get a simple buffering period, usually none though. However when trying to watch tv shows (mostly SD content), it would start and the almost immediately pause and buffer. Then 10 seconds later it would start playing for a minute or so and then back to buffering. It would do this 5-6 times per episode, at least. After I hardcoded the network information under settings (stopped allowing the AppleTV to use DHCP), magically I could watch all types of content again without any real buffering issues.
Occasionally I get some buffering at the start of an episode but it is brief and generally only happens once, and not on every single media.
Long story short, there is no doubt in my mind that there is an issue with the AppleTV and Netflix, however I have made it work 99.99% of the time by manually configuring the network settings. I hope it works for you =).