Can the hard drive in an Apple TV be upgraded? How

Any time you experience a hard drive (not rice!) error, it's safe to assume the worst and take the initial precaution of backing up your data... Right now, before anything gets worse! Clone the whole drive and see if the clone boots.

Once you have a good backup, you can play with your old drive, attempting to reformat the entire device and see if that "fixes" the proble.

My experience leads metro suggest a real simple procedure: replace the drive before you can't get anything off it. Flakey hardware tends to fail at the worst possible time.

So, to summarise, if I understand correctly, you have:

• old 500GB drive in an external case, with good data
• new 1TB installed internally, with bad data

I would do the following:

1. Plug in the external 500GB drive.
2. Hold the option (alt) key whilst turning on the Mac, then choose to boot from the external drive.
3. Erase the internal drive using Disk Utility.
4. Copy the contents of the external drive to the internal. This can be done using the Restore pane in Disk Utility, or alternatively Carbon Copy Cloner or SuperDuper!. SuperDuper is perhaps the easiest to use here.