After releasing an application called AirPlayer that allows you to stream video to your mac from your iPad using Apple’s built-in AirPlay services, TUAW’s Erica Sadun has now released AirFlick that transmits data to any Apple TV 2 outside of iTunes. According to Erica, AirFlick offers the potential of real-time transcoding of otherwise unsupported file types into Apple TV-compatible data. It also allows you to open videos located on the internet by pasting a URL and clicking the play button. Erica was able to watch a number of Internet Archive (archive.org) mp4 videos on a big screen TV by browsing that website, selecting URLs, and opening them with AirFlick.
iOS 4.2.1 brought only some minor bug fixes related to resolution and download problems, so if you updated to 4.1.1 you are still able to jailbreak your Apple TV 2G with PwnageTool. All you’ll have to do is to use new PwnageTool bundle to jailbreak iOS 4.2.1 instead of iOS 4.2 PwageTool bundle. Note that this jailbreak is also tethered, which means you have to connect your Apple TV 2G with PC and use Redsn0w or PwnageBundle to boot it.
Here are the instructions from nitoTV