The Apple TV 1 doesn't have enough power to playback Netflix. If you do manage to get Silverlight installed on it, you'll get a very jumpy movie.
Sell your ATV1 and buy a used ATV2.
Weren't the ATV1s found to just be very cheaply built macs though? Surely if it can playback 720p video it can do netflix just fine...?
They have a 1Ghz Pentium M and 256Mb ram. My Mac Mini with a 1.5Ghz Core Solo used to struggle with Netflix playback, until I upgraded it. The 720p decoding is done by hardware decoding in the GPU.
Awesome! Thanks guys! Does the AT2 work with the original iPad to do AirPlay Mirroring?