appletv sound problems, somewhat detailed

[lazydays]

I have an appletv that is distorting on any loud music. It is acutely noticeable when listening to piano music where a single key might come through very loudly. I'm hoping to get some help diagnosing the problem. I used David Lanz Improvisation Friedensengel as my test song and Grado SR125 headphones.

I have the appltv hdmi running into a tv and then the tv's normal audio outputs to my accuphase (fairly high end) amplifier aux1 input. I also have the appletv normal audio outputs running into the tape2 inputs of the amplifier.

I started by playing the song using the appletv, going thru the tv, and then to the amp aux1. Massive distortion even if I turned the volume on the appletv down to 2 bars and the tv volume down to 15%. No way to eliminate the distortion.

Then I tried going straight from the appletv to the amp using the tape2 input. Very little, but still noticeable distortion at approx 22 seconds.

I hooked my ipod up to the tv and played the same song. No distortion as long as I kept the ipod volume to about 75%.

Then I went downstairs and played the same song on another appletv connected to a tv using hdmi and then to another accuphase amp using standard audio inputs. No distortion at all.

So I carried appletv number 2 upstairs and hooked it up. Using hdmi massive distortion but absolutely no distortion using the standard outputs.

Last, I updated the original appletv to the latest software but it still distorts.

I'm up pretty late but I think this means I have a bad appletv. Anything left for me to do before I try to return it?