I'm wondering if there's a bug that involves smart albums versus manually created albums.
In addition to using a smart album to find flagged photos from my entire library, I tried adding an item to the smart album that would also show all photos in the latest three Events.
In other words, an album for all flagged photos plus all new photos shot within the last three uploads to iPhoto.
However, the AppleTV screensaver never took any photos from the latest three Events. It just kept finding the same limited set of flagged photos.