I can't answer for Simon but for me but so far there has been no more droping of the connection.
The only thing I learned with my set-up (Thank you Apple Tech Support) was that if you hard wire your computer to your router and have a static IP assigned to your router and your apple TV, make sure you assign an IP address outside the range your router assigns to your computer. That was what was causing the interference before, something about mixing protocols which I am not totally clear on but it works.
I also reset my Apple TV and updated it (USB connected) one last time and since then I have had no more freezes or issues of any type.
To fix the movie freezes I just removed it from my library (don't delete it) and then re-added it. For the one rental I had that happen to me on I just informed Apple and they sent it to me again. Once I re-did the USB update again it has not happened since.
Keeping my fingers crossed. In case anyone else wants to try it.
Following the suggestions from this thread here is my current set-up:
Used the restore defaults and updated Apple TV 2 using the mini usb connection. DO NOT plug in a power cord to the Apple TV let it draw power from the USB connection, otherwise it may give you an error message.
iMac 2.8 GHz intel core 2 duo running 10.7 with the latest iTunes update as well.
Moterola modem with an AirPort Extreme base station. The iMac is connected via cable the Apple TV is the only wireless client on the network normally.
Have both 5 GHz and 2.4 GHz bands running but not the "wide channel" selection.
Manually configured the internet connection so that the subnet Mask, Router Address and DNS server address match those in the computer (not the router - which has a static IP).
The Apple TV has it's own assigned IP address on the network which is programmed into the router and the firewall settings.
The iMac's assigned IP address is outside the range of addresses assigned by the AirPort Extreme base station (only use this option if your computer is hard wired to your router).