Using Airport Express/AirTunes.

It's possible you are getting some 2.4ghz frequency interference from other devices in your area. Can you hardwire the AppleTV via Ethernet? That or get a 5ghz router. If you are getting a strong signal adding additional AE will be a waste of money. That's not the problem.

Here's something for you to consider: Avoid streaming. I used to stream from my MacBook Pro to an Airport Express, then bypassed the AE DAC by using an optical out from the AE into my Benchmark DAC. Recently, I cut out the streaming by putting all my music on a Mac Mini with a direct connection to the Benchmark. No more streaming, which results in better sound IMHO, and here's the neat part: I use the "screen sharing" feature on my MacBook Pro to control the Mac Mini/iTunes, which is a wireless connection. In other words, my MacBook Pro serves as the screen of the Mac Mini. I'm still wirelessly controlling the music, but the music travels through a direct connection rather than streaming. Great setup and the Mac Mini can be tucked away on my rack.

That's easy to say in hindsight, not if you haven't tried it before.

In the end... the sound was terrible from AppleTV via optical. And wireless didn't help. I discovered there's a "Bermuda Triangle" wireless zone in that part of my room where the audio system sits. I was able to improve it somewhat with rearranging the order of the AE and AEBS units but it would require adding one or two more AE's to make it more reliable. No point though as stated above.

Also tried USB converter. Awful. Going back to what worked before; iTransport/iPod. The 171i this time.

wow, i was just thinking of building a digital music server using AE but the thought of dropouts and such has scared me off (anyways, i do have SB3 so may as well try it first).

seems best solution is to keep things hardwired, no?

If you like sound through optical w/ AE give it a try, but SB3 via COAX will be superior. Depending on where your set up and surroundings, distance between devices/wireless network router, external interference,..etc., it may take using multiple wireless devices to get the proper coverage. The only way to know is to try it. And yes, ethernet cable solves all that.