Any ideas? Is it happening to everyone or just me???
If you look through the Help/Tech forum pages, you will find many, many threads from users of ATV2 who have had problems. So, I would guess that it is not just you. I don't have the impression that a good solution has been found. Most of the time people are referred to ATV or XMBC forums.
There is this info from a reliable source: XBMC Plugins
For the original Icefilms.info plugin, there is a known issue with latest repo on Apple TV 2. The 1.0.21 release often doesn’t work on it, although the plugin works fine on Windows XBMC installations.
For IceLibrary, same issues with the ATV2
There is also this, courtesy of gspat: After lots of trial an error i found changing Audio/Video in ATV2 to 16Bit and Coaxial/Optical in XBMC fixed the problem immediately also found that using Sync Back DropDupe option really leaned out the quality.
Video now plays exactly the same as it does when rented from iTunes store.