ATV 2 stopped working. The connections are good, the remote is paired and working, but the menus come and go off sporadically, and the white light just blinks continuously.

Question

I bought ATV 2 about two weeks ago.  The setup was easy and I set up my Home Sharing, screensavers, and I was watching Netflix within about 20 minutes.  I had a good week of no trouble and enjoyed the device immensely.  I updated the software when prompted and continued to watch movies and play music.  Then something happened: in the middle of viewing, ATV 2 stopped working, the screen went blank, and the little white light started blinking slowly.  When this happens, the ATV manual "troubleshooting" section merely says, "Apple TV is having problems."  ***?  Strangely, it would come on and act fine for a few moments as if nothing happended (for only a minute or two), then click off again.
I attempted to RESET the device by using the Down/Menu combo -- nothing -- the white light blinks really fast but still no picture on the TV (just the Apple logo); I unplugged it and plugged it back in -- no fix; then, I RESTORED the device and had to re-enter Apple and Netflix account info, passwords, set up shared photo folders, etc.  Afterwards, it worked.  I watched movies right where I left off and went on with life until a few days ago when I wanted to finish a movie... The movie was going fine - no problems at all - until ATV 2 stopped working again! 
So, the remote works [it is paired and sends commands as it should], the HDMI connection to HDTV is fine, the stereo receiver connection is fine (for audio, using an optical cable).  But the only thing on the TV is the Apple logo.  Resetting ATV 2 doesn't work; and I could restore it again but that seems like a HUGE waste of time, and something I am not prepared to do each time I want to use the device. 
What could be the cause?  Wireless interferrence, software/update flaws, need for firmware, or malfunctioning hardware?   ATV 2 is a $100 paperweight until I get answers.

Answer 1

After some sleuthing online, reading a compilation of Q&As here, and visiting the local Apple Store, I think the problem and "solution" may be found in HOW my ATV2 is connected to my stereo.  For some reason that I have not figured out, when the RECEIVER either switches from one setting to another, it somehow disrupts the ATV.
The ORDER of how you turn ATV on and off is key.  If you start with everything OFF (ATV, HDTV, stereo Receiver), then turn on the receiver, then turn the HDTV, put the TV to the input setting that is connected to the ATV, THEN turn on the ATV by hitting the Play button on the remote. 
Note: The ATV light may come on once the HDTV is turned on and put to the correct setting, but you will not see a picture on your TV yet.
You should be up and running on ATV (without having to reset, unplug or restore). Apparently, I was using my universal remote that essentially turned everything (HDTV, Onkyo Receiver and, by extension, the ATV) on at the same time, confusing ATV and causing that evil blinking white light.  The ATV connection was lost.
When you are done with ATV, you must put ATV to sleep FIRST... each time. The command is on the main menu, to the far right, at the bottom [Sleep Now].  Once you press Sleep Now, the ATV will go off.  THEN you can turn your receiver/HDTV off (or to whatever other setting you want for watching regular tv, music, etc.).  I was simply switching my HDTV and Receiver 'away' from ATV when I was done... But I would return to a blinking light and no ATV.  The solution above is a work-around that seems to do the trick.
The thing Apple needs to fix is to make the "Sleep Now" command a simple process on the remote so you don't have to back out of everything you were watching to get to the main menu for the Sleep Now command. Or in the next update Apple merely needs to improve ATV2 so it can work no matter what order you open or close it on a HDTV/Stereo. 
Note: Other people have suggested that you just hit the select or Menu button to put ATV to sleep, but that did NOT work for me.
I figured this out through trial and error so I hope it works for you too.