It might be specific to my setup - there does not seem to be a way to set the output resolution on the new appletv box, and I run my video through a video scaler (DVDO VP30) and from there to a 65" plasma.
I don't know how it ends up setting an output resolution for the appleTV, probably some kind of auto detect of the display. In my case it would be the video scaler that it auto detects. My scaler works best with 480i for non-hdtv content, as it is bound to do a much better job than the appletv box at up-resing the video, and it could be that my bad image quality is due to the video being up-resed in two places.
Any suggestions appreciated.