Mitchys,
You're not doing anything wrong. Several have reported that it works for them, though I've never had anyone answer my questions about how it really functionally works.
Some say the "Internet Radio" playlist shows up under your "Shared" lib, and others say it shows up under Internet/Radio on the home screen of the 1st gen. ATV.
I can create such a list, and it is working while on my iMac, but is not available on my ATV. Coincidentally, it is available to me as a Playlist on my iPhone in the "Remote" App.
I've noticed over the weekend that Apple seems to be continuing to reduce the functionality of the 1st gen. ATV. There used to be 4-5 entries under each of the ATV home menus, but now I only have two. MyATV and Shared.
I have no problem buying a new $99 ATV, but that's just the beginning of getting where I was. I'm told I'll need to spend $5-$8000 for an 8 channel A/V matrix switcher, as it no longer has an option of component output, but requires HDMI.
Further, that's really only a small part of my problem as the new ATV supports HDCP copy protection, which in my case means that a simple and inexpensive solution in the form of a $1250 HDMI to component converter won't work.
I sure hope they really do what several of us have heard from our respective Apple Support people at different levels, and they really do have plans on fixing it. So far all I see is a further reduction in available services.