Haven't rented an Apple TV movie myself but I had a look at a customer's video quality through a Panasonic Plasma TV after he complained about it.

In darker scenes, the video looks very compressed with no shadow detail at all or poor gradient quality - step patterns between black and greys are very visible.

I tried looking for picture settings in Apple TV but nothing obvious. Even adjusting contrast or brightness close to minimum does nothing. Internet speed is 6Mbs.

Is this just normal or what?

yes, its normal

He says his friend has the first Apple TV and it doesn't have this problem. Is this true?

yup, rented planet of the apes newyears eve as my plans were cancelled last minute.(an awesome movie BTW) and i will never again, waste of 3.99 was extremly compressed and dark scenes were very "messy"

Hopefully your not the guy that sold an apple TV to him. I hate that when a customer adds that because he wants it then is upset and kind of annoyed with you because the experience of ATV isnt everything he was hoping.

Digital rental VOD services have a long ways to go.

Yeah but the on screen menus are awesome, but seriously those things suck for PQ.

Try Vudu on a PS3. Never had a problem with picture quality.

BIG +1 on VUDU over ATV for PQ. Its the only movie service that we use at my house.
I have used ATV, vudu, cinema now and netflix. Vudu is by far the best service available.