Problems syncing - no connection, yet I see the unti in iTunes

Hello,
I see the AppleTV under the device list in iTunes...on the AppleTV device, it confirms it's on the network with a strong signal ...It's been working well for months, and then all of a sudden this week (no software upgrades involved) when I hit the sync button, I get an "cannot connect to AppleTV...check Firewall for open communication to port 3689". I enable that connection AND also try with Firewall turned off...still same message. Anyone else have this problem? Next step is to restore factory settings I guess....

Here's the steps I took to get this far:
1. Install the most recent Firmware to the AE and get the latest utility software
2. Plug AE in (Hard Reset if needed), on your wireless computer connect to the wireless network created by the AE
3. Open AirPort Admin Utility (rather than AirPort Assistant)
4. The Base station should appear. Select the base station, press configure
A. On the AirPort tab:
Enter a Name
Enter a password
Select "Wireless mode - join existing wireless network" (wireless client)
Enter your network name (obtained from your router)
Select "Wireless security" - 128-bit* WEP (If you use a lower bit WEP, you will need to change that on your router to 128)
Change the drop down from Text to Hex and enter the hex password (You can do Text, I used the Hex)
B. On the Internet tab:
Select connect using wireless network
Enter the IP numbers obtained from your router (examples below).
IP address 192.168.0.109
subnet mask 255.255.255.0
router address 192.168.1.1
C. On the Music Tab:
Enable AirTunes on this base station
Do not enable AirTunes over Ethernet
Enter a speaker name (TV Room)
5. Press update button.
The new AE network should disappear form your available networks, reconnect to your home network if needed.
Going back to the admin utility you should be able to see the AE.
Check iTunes to see if the AE is there.

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