I just tried out my WDTV Live for the first time, upgraded to 1.1.11 and *BAM* ... stuck at 480p, just as you.
However - I solved it by downloading 1.1.11 again from the WD support website, put it on a USB key and changed the .ver file to a higher version number, as to let the box see the "new" firmware.
Before "upgrading" to the same firmware that was already on the box, I set the output to HDMI 1080p 60 hz.
I figured that maybe the box got "locked" into the lower output, 480p, that was selected at the time of upgrading... and it worked.
So - try "upgrading" to the same firmware while having set the right output mode, and see if it works? It worked for me.