My stuff is all encoded in Apple Universal. Basically works on iPod, iPhone and Apple TV.
I didn't do all of my collection because I knew I could have been changing things, but I tested it out on my 2707wfp in full screen (1920 x 1200) and it wasn't too bad at all.
The same stuff synced or streamed with my Apple TV is pixel-y/blocky and it's skipping frames. And that's only on a 720p set (Sony Bravia 32").
I can only think that there's some sort of odd compression going on because the quality of the video [on file], is as good as DVD quality. Either that or the Apple TV hasn't got the grunt to deliver at the quality it's at.
I'm hoping a Mac Mini will solve my problems. It's a bit more than I'd want to spend [about £300+ more...] but I'm very particular about getting this HTPC stuff right if it's to be done at all, so far I've failed in that task.
I'm sure I could sit and spend ages optimizing for Apple TV but I'm really liking the quality that I have at the moment and it looks good on TV (via Mac Pro), on my iPhone and in a small window on the computer.
Cheers for the advice on the XBMC but given how Apple operate, I'd rather not get involved.
Will probably go to the Apple Store tomorrow and get a Mini - hopefully they'll have one with 2 or 4gb of RAM.
I read some of the specs on the ATV and unfortunately it doesn't do particularly high bit rates, which is the reason I held off... And probably why it was blocky for you.