After reading this thread and going through my own experience with the problem, I think I can safely say that it WAS an issue related to the iTunes 7.2 update. AppleTV apparently gets some of its information from the connected iTunes, thus putting some of the paranoid "AppleTV phones home" concerns to rest. I witnessed my AppleTV completely restart itself (back to the diagnostic screen!) when a second computer on the network updated to iTunes 7.2.
Well, as others have pointed out already, there is actually a fair bit of evidence that it had
nothing to do with the iTunes 7.2 update.
I have two tv's, and when I first saw this problem reported, I rebooted one of them, and the result was the continuous loop that others have described here. After that, I shut down ALL of my computers (iBook, PowerBook, Mac Mini -- all powered OFF), and then did a complete "Factory Restore" on both of my tv's. Hence, two fresh out-of-the-box re-formatted tv's. The problem manifested itself as soon as I got an IP address assigned to either of them (by my Airport Extreme router).
Unplugging the Internet connection
completely was the only solution to stop the tv reboot cycle, and then later (as others have described), set the default route to prevent them from accessing the Internet (so that I could otherwise turn my connection back on).
Once the tv's had no
direct Internet access, they continued to run just fine, even after my other computers were brought online, iTunes 7.2 started up on all three of them, and registration, activation, and synchronization started occurring. The back-end copies of iTunes 7.2 had
full access to the Internet, yet the tv's remained completely stable
until I reconfigured the network settings to give them Internet access again, at which point the cycle restarted itself.
As for the tv phoning home... That's demonstrably true. A simple series of packet traces will prove that easily enough. The content appears to be all HTTP, and on investigating the packet content, it's basically just updating a local cache of the trailers and top-ten lists and their related artwork, and is obviously intended to improve performance and the overall user experience by having this information readily available when requested.
This is
not done via iTunes or a back-end computer, but is rather
direct communication between the tv and the iTunes Store on the back-end -- a basic run of Ethereal, Sniffer Pro or even tcpdump can demonstrate this in a few seconds.
Personally, I'm not particularly concerned about it, since all evidence I've seen thus far (and I've looked inside the packets) indicates that the tv is simply pre-requesting the data that you would be requesting
anyway if you selected the appropriate menu options. There is no other "hidden" data being sent back to the mothership.