Same issue here with the WD TV Live (lucky to be in the 30 day return policy from Amazon).
It is an HDMI HDCP issue with our TVs, and the fact that the WD TV Live, and TV Live Hub do not work with a lot of TVs via HDMI. What you need to do is switch the input to Component cables for Netflix, and you will get back Netflix in HD, and SD.
I am swapping my WD TV Live for the WD TV Hub since the Hub has component outs, the TV Live does not have components out only composite out.
I had to setup my cable HD DVR box this way as well do to the HDCP issue with my TV's solo HDMI input.