1) AppleTV and new 500GB SATA 2.5" HDD
2) Remove the bottom of the AppleTV
3) Remove the original AppleTV hard drive
4) You will need to poke a hole in the IDE cable on the AppeTV as it's key'ed. The OEM 2.5" IDE to SATA converter does not have the pin missing for the key'ed hole.
5) It's very important to orientate the cable properly on the IDE to SATA converter as laptop IDE contains additional pins for power. If you orientate it wrong you can damage the hard drive or the converter.
6) The AppleTV with SATA converter and 500GB HDD.
7) Before modding the AppleTV I connected it to the TV to verify functionality
8) Modification time. This is the space you have to work with.
9) Because space is such so tight we need to chop off one of mounting posts and a part of the shield/baffle.
10) We're so down to the wire with space we need to clip off the top of the IDE cable.
11) Test fitting
12) Dremel off the mounting stand (top right corner)
Put it back together and you're all done!