Is this normal?
No, that is definitely not normal. What program was used to rip the files?
Are the files being stored on the local AppleTV hard drive, or are they being streamed over the network?
I don’t know what they were ripped with… Hmmm… I’ll re-rip if needed… What do you reccommend??? ALSO… Is there a way to have my rips on an external drive, but show up under the main “movies” menu on ATV?
If you are using a Mac we recommend RipIt (ripitapp.com). Unfortunately DVD rips (VIDEO_TS files) can only be played through the nitoTV menu.
How about other formats M4V but ON the External HD?
Yes, they can be stored on the external drive.
If you want iTunes to sync to the external drive you can set the USB drive as primary storage by following the guide here:
Will that make the internal HD useless?
It will be ignored for iTunes syncing, but can be used for storing other non-iTunes media.
So… what would you reccommend for handbrake settings that would be as close to DVD quality?