Hi, robot. I think the key setting Video Size for your new ipad 3 isaccording to your source video exactly. If your source video is in 1080p, youcan set your video size in 1920*1080 in H.264 codec; while, if your originalvideo size is in standard, 720p in enough. For example, to play DVD on the newApple TV, 720*480 video size is enough due to the dvd movies' nativeresolution. By the way, have you got one video convert program? Which oneapply? I got the Pavtube Blu-ray Video Converter Ultimate (http://www.pavtube.com/blu-ray-video-converter-ultimate/) since I got my iPad 3, meanwhile now it helps me a lot convert my localvideos (including Blu-ray, DVD, and various formats of videos) to the new AppleTV.
You can adjust the videosize to 1920*1080 when you output Apple TV profile, not sure whether otherprograms will support, The reason that i recommend Pavtube program cause they have the profiles for new Apple TV and ipad 3