Since my iPod is smaller than the space available on the internal (or external drive), I quickly run out of space trying to sync additional music/movies via iTunes. I know I can copy the files to the drive and use aTV, which I've done, but does anyone know if I can set up a 2nd iTunes library specifically for the Apple TV? Doing so would remove the space restriction imposed by my smallish iPod.
You should be able to pick and choose which media to sync to each device. It can be entirely different media sets for the iPod and AppleTV.
I don't see where I can do that though. You open iTunes and enter the Apple TV 5 digit code to sync it to your iTunes. Once in iTunes though, I don't see a way to drag media into the Apple TV other than what I already have in iTunes and sync'd with my iPod. Any idea on how to create a second library for iTunes to be used with only the Apple TV?
you don't need a second library. You can set what syncs to the AppleTV within iTunes.
When viewing the AppleTV in iTunes you will want to select 'Manual Sync' instead of Automatic. This will add a handful of visible tabs near the top of the window, through which you can select the media to be synced to the AppleTV.