I do not know the answer, but I noticed a similar effect with a Netgear multimedia streamer we have. All the colors and stuff were real washed out and the image quality just looked like crap. Same TV, same resolution. Even the menu's looked like crap on the Netgear (not the layout, but actual picture quality). Even though it was on a secondary TV I ended up taking it out of usage and just bought another Apple TV. It made me wonder how many people watch stuff in that kind of picture quality without knowing it's subpar. And I'm not talking hardware snobbery, we are talking similar price points using standard hardware.
I have watched some Bluray's on our Xbox One (for when I haven't pre-ripped a movie to watch through AppleTV) and the image quality is very good. But that is high bitrate stuff and not the same as Netflix or something meant for streaming.
Going outside the original topic, I will also say that the AppleTV responsiveness is much better then other systems I have used.