I picked up a second black (for the second TV) and am now officially retiring my 1st gen Apple TV.
Ran the installer and it complained that it was an old version. Downloaded the new version, ran it (on Snow Leopard, not my new Lion system) and connected the new Apple tv when asked, did the menu-play/pause thing and it worked first try, right out of the box. Absolutely everything worked, first try. I’m very very happy. Was able to play DVDs from VIDEO_TS folder immediately, and both DTS and Dolby Digital output worked too (now, if only I could get it to NOT output the DTS to my TV on HDMI, where it sounds very horrendous indeed!)
Bravo! Now if only I can tweak/edit/guide the media metadata, because it’s just plain wrong sometimes