So far VLC is working awesome for me on Apple TV. It handles subtitles way better than anything I've tried, and also it's the first player I've used for playing Digitially Imported streams that doesn't suck.
I am a little confused about something - there is a setting for "background audio" which made me thing I could put VLC in the background while playing music, but when I put VLC in the background the music stops. Am I misunderstanding something? My dream app is one that can play an audio stream while I have a cool Apple TV screensaver running...