I have installed Ubuntu Mint and XBMCBuntu on ATV1 .
reference see
http://teknogeekz.com/blog/?p=496
It is possible and goes like this
To a USB stick or USB hard disk, install ATV Bootloader for auto boot
Make sure Apple TV will start to atvbootloader (penguin Logo)
use remaining space for an EXT3 Partition
Move USB thumb drive or Hard disk to a PC with no other hard disk (recommended) ,
Boot PC to a install CD of Linux distro of choice and choose custom install to ext3 partition mentioned earlier
When installation is complete boot to linux and use "blkid" or "sudo blkid" to get the UUID of ext3 partition
Create a faux old style grub menu.lst file using UUUID of ext3 partition et al ,
edit fstab
insert USB into Apple Tv and boot linux on Apple TV with ethernet connected
connect to ATV via ssh
Install atvclient (for apple remote support)
Install crystalhd (if using Broadcom crystalHD)
Install b43 Wifi drivers (if using internal wifi)
Installl nvidia 2.95.40 driver
If installing other than XBMCBuntu, disable all 3d effects and Unity
edit xorg.conf to add Option “DynamicTwinView” “false”
install xbmc (pre loaded in xbmcbuntu)
reboot to a fully functional xbmc
there may be an issue with HD decoding with CrystalHD card installed however. I have never figured out why but I believe it may have something to do with the interaction of Nvidia and CrystalHD drivers. If you figure it out please PM me
If you want to copy this to the hard disk of ATV this is easily one with usb disk and ATV1 internal disk connected to a linux machine with "dd" command. I typically use an IDE to USB adapter for the ATV disk when connecting to PC
Although Crystalbuntu is super fast and based on ubuntu , it suffers in many ways; Breaks Ubuntu installations and updates (or updates break Crystalbuntu), and often has issues with updates, as well as crystalbuntu updates that can completely break crystalbuntu, as has happened to me on several occasions.