If diagnostics says appletv is working properly, why does the install keep getting stuck on pairing with the computer then back to select resolution over and over.

First gen Appletv suddenly stopped working from one night to the next. This has happened in the past once and the usual restore, reboot, etc, tinkering finally snapped it back into working quite unexpectadly. The symptom is, after restore when it gets to the screen to pair with itunes by entering the numbers in itunes, the number is briefly up on the tv screen and then quickly is gone returning to the select resolution page. This happens over and over with each try while the Appletv never shows up in itunes and the number box never appears either to pair the computer with the Appletv. It does the same thing with my intel macbook so I don't think it's the Imac. I have dumped itunes 10 and reloaded itunes 9 with no change in the problem. My IP scanner picks up that the Appletv is on our network as soon as it turns on. I have used wireless, which it finds and logs into, and ethernet which also has it finding my network. I can't test whether it is actually on the network by trying to play a trailer or something because it will not go past that pairing screen in the initial setup. Are the built in diagnostics reliable when they say your appletv is working correctly. The hard drive isn't making any exceptionally loud noise as it spins up. I am stuck with this unit because I use it with a G4 Imac running Tiger 10.4 for a video/audio jukebox at the bar. New ATV won't work with the Imac unless it's running leopard I believe. The thing runs like molasses already so attempting leopard which I don't have anyway would really make it crawl. I love a good mystery/problem but this thing is driving me crazy. If I just could know for sure what component inside was shot I would replace it. Could a hard drive boot up to a degree and then get stuck at one part of the install, or would it have to be the logic board, or something else. Bad juju in the house or something 🙂