Apple TV Software Fix in the Works
Apple Insider is reporting that Apple is preparing a small software update for the Apple TV that will alleviate screen flickering issues for many users have reported from the 4.2 update (which is actually a build of iOS 4.3).
Apple support confirmed that they are "aware of the issues caused by the latest update," but there is no current timeframe for the update's release. The problem seems to be isolated to older high definition TVs from many major brands, including Sony, Panasonic, and Samsung. The issue appears on these televisions regardless of direct HDMI connections or HDMI to DVI connections, and has to do with televisions that are capable of correctly displaying 1080i, and not 720p, the Apple TVs output.
The 4.2 software update for Apple TV (2nd Gen) added MLB and NBA live game streaming, and support for AirPlay on iOS 4.3 devices. It also added Dolby Digital 5.1 sound for Netflix.