Just bought the stick and assembled exactly per instructions without error. It is an IBM 1GB thumb drive. Installer appears to hang after BusyBox install trying to then initialize BusyBox where the command line says starting init.d/rcS.
At first I thought maybe this was an issue with the thumb drive, and then maybe because I was connected via Wireless, but once plugged in to the router directly, the same error occurs at exactly the same spot…
I followed the instructions perfectly and did it once more to make sure.
Anyone had any success with a larger stick made by Sony?
This problem is typical of a flash drive not being recognized correctly by the Apple TV. Try using a different stick. Kingston and Memorex tend to work quite well.