ATV3 will not output an HD movie

I very recently upgraded to an ATV 3rd gen (selling our gen 2) after seeing the quality of my sister's ATV3 (which is also signed into our iTunes account).
After setting it up and marking the iTunes preference to 1080p, and the TV setting to 1080p, the quality is no where near what she has. Both of our TVs are 1080p, hers is a 40" LCD and mine is a 51" plasma. I experimented by switching my preference back to 720p and the video quality was EXACTLY the same as it was when set at 1080p. I have restarted our router, the ATV and updated the software, checked the settings for our plasma, everything that I can think of and it still has the same quality as our gen 2 ATV did at 720p.
Our internet is around 50MB and the ATV is hardwired, I did dis-connect it and run wifi and the quality is the same. (speed tests run about 40MB on wifi).
Is there anything else I can do to solve this issue?
I was looking around and I saw that some people with MBPs had previously downloaded movies in 720p and they had to delete them and re-download them to get 1080p but my macbook is not even turned on right now, this is streaming from Apple.
Every movie we have purchased on iTunes has been in HD, yet none of them look anywhere close to the quality my sister had with a gen 3 ATV (watching the exact same movies we have under our account). Could this be an issue where we had previosly watched them with an ATV2 and it is still stuck somewhere that it thinks we still stream in 720p?
Sorry for the long post, thank you for any responses.

Did you try this?
Go to Settings > iTunes Store and look in the Preferences section.
Video Resolution should be set to 1080p HD, and HD Previews should be set to On.

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Message was edited by: Jonathan Timpe

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