Just to show some insight into the new people finding this thread and others that may not be informed of certain problems associated with Netflix, Apple TV and ISPs.
The reason for some of the confusion is as to the source of this Apple TV netflix problem has to do with the fact that there has been another issue plagging Netflix, and that has to with the business relationship of Netflix and some of the major ISPs/Cable providers in the country.
I came across this after googling around when I noticed that after moving to a new apartment, I transfered my Comcast 50mb Blast! Plus service and noticed that all of the sudden the stream quality of Netflix on multiple devices (Windows 7 computer, PS3, Apple TV) were all stuck at the lowest possible stream at around 480p. This happened during evenings, weekends and prime time TV times, but also during the day.
Like everyone else, I tested my entire network, double checked everything, ran speed tests and everything was fine. My 50/10 connection worked fine and all my other streaming apps worked fine like Hulu/Youtube/Browsers etc.
I was scratching my head since this didn't happen at my old apartment and I also had the same Comcast plan. So I did some googling and came across some topics over at ADSLReport forums and some of the like. I learned that Netflix puts all their content up on CDNs also known as Content providers. These CDNs are the ones that we connect to to get all our media from Netflix streamed. So what happens with some ISPs (like Comcast in this example) is that during peak hours or just high usage the CDN bandwidth gets congested and neither Netflix nor Comcast assume responsibility towards improving that data flow.
So this means that some Comcast users, depending on what city they are in, may experience this "throttled" effect when using Netflix, specially at peak hours. It doesn't affect everyone, it is a case by case and to me it seems to be that the more populated area you are in, the worse it is. I moved to a Metropolitan downtown area for example.
To my knowledge Comcast is one of the most popular ISPs to be currently suffering from this congestion in the whole Netflix thing but they are not the only one. I also believe Netflix had this Open Connect CDN network which included some ISPs, and the ones that did not want to join like Comcast and AT&T were left out in the cold, but I believe that has changed. Not sure that changes anything with the current CDN issue though.
For those that have experienced the low stream quality problem on multiple devices and not just Apple TV, and at random times of the day, specially evenings, this will shed some light as to why. Do some google searches on "bad quality Netflix with Comcast CDN" and you will come across some more technical forum discussions elaborating on the problem more in depth.
To see for yourself that you are having a problem directly connected with the ISP, do what I did. When I get extremely bad stream quality on my desktop PC (ethernet connection), I just connect to my VPN service and connect to a local server in my city, and behold, all the sudden I get max quality without a hitch.
However, keep in mind that this is a separate issue aside from the specific Netflix-AppleTV problem. Currently my streams on my Comcast connection for Netflix apps is working flawlessly all but on the AppleTV. There is indeed a problem directly involving Netflix and AppleTV app. Just like everyone else, since the beginning of November I have not been able to get beyond 480p on Apple TV. Could be a software issue or perhaps something to do with CDN or bad hand shaking as someone posted earlier. Needless to say it is something we can assume will (hopefully) ge fixed soon.
As far as the ISP-Netflix ordeal, that is still out in the open and it seems to be affecting, many many people's experience.