Sounds to me like an issue with HDCP, which seems to now be fully enforced with the new update. Basically, it's encryption that keeps copyrighted content (ie Netflix programs or movies, certain types of HD physical media) from going to incompatible or unauthorized devices, such as capture cards, DVRs, and other recorders. Perhaps Microsoft had to make some concessions to content providers in order to have continued use of the service, as well as connection to live TV services.
However, the back side of that is that unconventional setups (needing component audio in addition to HDMI output) won't work at full HD resolutions, or at all. It's a crap deal, no doubt, but I also doubt it was done for no reason. Considering the outpouring of issues I've seen today, I wouldn't be surprised if something were quietly done about it, or that an announcement will be made shortly as to a solution. In the meantime, you might have to watch that content in a non-HD resolution (I know, it really sucks), but at least it can be used. Please don't freak out here; I'm merely conjecturing based on the knowledge I have and some light reading.