I’ve restored my Apple TV, updated to ATV 3.0, updated to ATV Flash 4.0, reformatted and renamed my external USB drive and followed the instructions for switching to external storage, but after a few minutes of waiting while files are copies to the USB drive, the screen saver kicks in, all drive activity ceases, and the only way to regain control of the Apple TV is to unplug it. Upon reboot, checking in Maintenance>Settings shows that the internal, NOT the external drive is being used.
I guess we wait until a fix is issued.
Oh well, lesson learned. Never update to the latest Apple TV/ATV Flash releases for at least two weeks, preferably more. The USB storage thing was evidently not thoroughly tested before 4.0 was released.