I am also having issues with this flickering now that I have updated to 4.2. I have an older sony 1080i TV. The Apple TV displays that my resolution displayed is 480p, but that is nothing new. It originally had a similar issue when I first purchased it, but after the first software update the issue was resolved.
I contacted Apple Tech Support tonight, and they sent it up to engineering. The tech I spoke with had not heard of the problem yet, but after reading this thread, I am surprised by that.... Hopefully we will all get another update to this so we can use our apple tv 2's with our older TV's once again.