I started experiencing
exactly the same problem
after updating my 60GB iPod that I bought in June to 1.2. My iPod played audio perfectly fine through the TV, until this update, and then it stopped after the update (I can faintly hear it if a crank the TV volume).
The other iPod in the house, also a 60GB, bought in July, played fine before 1.2 and now won't play audio either after updating to 1.2.
I think this is a bug introduced by the 1.2 update -- I changed no configuration on my TV, the only change was the iPod software version.
I'm disappointed, as the main reason I purchased a video model was so I could watch them on my TV, so I feel like Apple has not delivered.
Windows XP