AppleTv 1st gen seems to overheat

the device gets hot by design as the external casing acts as the heatsink.
whether it is overheating is hard to say.

if could be freezing due to hardware failure (which could be related to overheating or not).

if it has developed a fault there probably isn't much you can do about it (unless it's still under warranty).

Is it a 40GB or a 160GB. I assume you have nothing stacked above or below the Apple TV that generates heat? Both my first 40s seemed more problematic and my 160s have been trouble free. When I upgraded my 40s their problems went away.

It's hard to say what the problem might be. They run hot by design and mine has always been erratic in that it occasionally reboots itself or has to be rebooted because it becomes unresponsive. It also becomes unstable after playing HD video longer than an hour and has to be rebooted.

If the problems are happening frequently it could be an indication of impending hardware failure. If the problems are happening occasionally then it's more likely to be the general stability/performance issues that have plagued many ATV1s since the beginning of time.

If you are using HDMI, try using component to eliminate HDMI issues causing the issues you see. You might also want to try disconnecting it from the network for a while and seeing if the problem persists.

I don't have problems with it freezing up on me
but if it's heat then if mine was to get any hotter it would start to smoke
so heat may not be the cause