After further study, i think:
You could get a switch for the Theater room. Connect it to the ActionTec with the wire now feeding the Netgear. Connect your wired devices to the switch or ActionTec, as appropriate. The switch will be working like a multiline splitter. Note that all Theater traffic will be carried over one network wire. Use Gigabit switch and port, if possible. (This is the same as your current setup, no better or worse.)
Assuming you prefer to use the Netgear for wifi (better performance, better location, etc.), you can configure it as an Access Point. Connect it to an ethernet port at either location, and use it for all your wifi. Again, this means you wifi clients will be sharing one connection to the network, same as they are now. I believe, but cannot confirm, that this will put the wifi clients on the same network as the wired devices. Docs indicate that the Access Point disables its DHCP server, so the wifi IP addresses must come from the primary router.
This will clean up your network configuration. If you want to support two wifi networks, you might even be able to enable the ActionTec wifi also, using different wifi channels, of course.
Sometimes there's a problem with older routers not handling AirPlay discovery between wifi and wireless, but that should not be a problem here.
Why did your previous configuration "work" up to now? You were only using audio AirPlay, which is simpler than video; the device actually downloads the stream from the remote server and transmits it on to the AirPlay receiver. It really does play the music over the "air".
Why does using video AirPlay to ATV block other devices? Beats me, unless it's hogging the internet bandwidth. I'm really not sure how your iPad was able to talk to ATV at all.
