I was getting a horizontal banding / horizontal line effect in certain action scenes of movies played from XBMC on my Apple TV. Rather than a single clear frame, the frame appeared to be broken up in to a top and bottom component slightly offset.
I initially suspected this must be a CPU performance issue, but XBMC in debug mode showed the frame count was perfect, and running a "top" from the Apple shell showed the CPU was not stressed.
The good news is this issue is no longer; Setting 'Vertical blank sync' = 'Enable Always' seems to have fixed things.
I have a Panasonic 720p 50hz plasma:
My XBMC settings:
Render method = Auto Detect
Adjust refresh rate = Enabled
High quality software upscaling = Disabled
System - Apple hardware settings
Audio Output = Digital
Dolby Digital (AC3) capable receiver = Enabled
DTS Capable Receiver = Enabled
(I have my Apple TV plugged in to amplifier via optical audio cable)
Appearance Settings - Screen
Resolution: 1280x720 @ 50Hz (full screen)
Vertical blank sync = Enable Always
Standard DVDs play back perfect!
I have also ordered a Broadcom BCM70010/BCM70012 Mini PCI-e HD Decoder Chipset in preparation (I hope) for an announcement from Davilla (and Phi) regarding XBMC support for this hardware video decoder card directly on the Apple TV. This hopefully will give 1080 movie playback support!
(One essentially removes internal wifi card, and replaces it with the broadcom decoder).
See the following post: