I, too, have a 1st generation AppleTV that I depend on daily for internet music.
I'm a 1995 retired Apple Developer, and had already tied EVERYTHING in this thread, so I contacted Apple Support... finally had to get to 3rd tier Support only to find out his 1st generation AppleTV was doing the same thing. He told me that because he could easily duplicate the issue, he's report it, but cautioned sometimes it takes weeks to get to the right person.
Someone obviously very recently monkeyed with the system, and I expect it to be fixed as this is 80% of what I still use this marvellous technology, and upgrading to the new one would not be a solution as it only has an HDMI output, and I have a system throughout the house that uses a 4x4 matrix mixer that it would not be compatable... unless I spent some $7500 to get a bigger matrix mixer.
This is because There is a code on HDMI called HDCP. Which is a security feature. When you get an HDMI to component converter the HDCP does not get transferred and the hdmi device thinks you are trying to copy a device.
I sure hope they get this fixed FAST!