I just set up my Apple TV and was very surprised that when I played a DVD from my Macbook it came out all grey on the Apple TV. This thread claims that you cannot play a DVD on Apple TV due to copyright. Here are two ways to get around Apple’s DVD viewing protection.
To play a DVD on an Apple TV you need to load the DVD into another computer then ‘stream’ it to the Apple TV. You can do this with movies you have hired or purchased from the Apple store, but when you try to view a DVD, it comes out grey.
“The licensing from the DVD technology owners generally prevent video DVDs from being streamed, mirrored, or otherwise displayed on anything other than the device for which the player has been licensed.” (Apple support thread)
I believe it is legal to watch a DVD you have purchased or rented.
Here are two ways to watch a DVD on Apple TV:
1. Instead of using the Apple DVD player to watch the movie, use VLC. (VLC is free.) VLC does not have the greyed out problem. You can do this live.
2. RIP the DVD to your computer using Handbrake. (Handbrake is free.) In Handbreak select ‘Apple TV’ as the preset. You can then drop the movie into iTunes and access it from your Apple TV. You need to do this before you watch the movie and it can take up to an hour or two. Alternatively you can copy the ripped DVD to a thumb drive and stick the thumb drive into the Apple TV USB port.