(I was unable to use the option to downgrade as itunes would not even recognize the device.) So if that's encountered here's how I fixed it:
The Oct 2012 update bricked my Apple TV-2, although the update went the same as previous updates and the unit worked for a few hours.
Then, next time I restarted it got stuck on "Whats New?" screen (the Continue button would not respond.) After about 7 minutes wait it went to the Home Screen but without response from the remote (I changed in a new battery too.) Then it went to the screensaver and stayed stuck on that. It refused to soft-reboot. I could not restore it either as iTunes (via Micro-USB cable) on my Macbook would not recognize the ATV2. (I tried all kinds of permutations and two Micro-USB cables.)
So I tried putting the ATV2 in DFU (Device Firmware Update) mode using iTunes in Windows 7 (Pro) on Parallels (7). This worked.
Here is How to Put the Apple TV into DFU Mode: (I had to try variations on this to get iTunes to see the ATV2 in Devices.)
Note: You will need a Micro-USB cable to connect your AppleTV with iTunes-for-Windows running.
Step 1: Connect the ATV2 via Micro-USB to computer.
Step 2: Hold menu+down for 6 seconds to reboot. (As that did not work for me I had to disconnect/reconnect power instead.)
Step 3: Then immediately hold Menu+Play (on the ATV2 remote) to go into DFU mode. (Rapid flashing followed by less rapid flashing.)
It (eventually after restarting iTunes, Windows etc) showed up in iTunes/Devices just like an iPhone etc.
Click Restore.
I then had to babysit the update as there are a number of messages to be OK-ed, and, at one time, iTunes for Mac began starting up.)
Back to normal (for now.)
This process was tenuous and required patience - I almost gave up trying to get iTunes to see the device.
[There's probably a hardware issue on some devices (different vendors?). Apple should exchange these defective units for refurbished ones. After all it's their software update that broke the units.]