I could be wrong, but I don’t think the WDTVlive can read the structure of BD discs. You’ll need to convert to a .mkv file. http://makemkv.com/ has great free software for the task.
I have the same problem with file m2ts in a movie of 45Gb in directory Stream…my wdtv live has the latest firmware 11/2010… today I’ll istall the version 12/2010…
The WD TV can play the m2ts files of a blu-ray. However, if you play just the largest m2ts file, you will watch the main movie, but you cannot access the chapters because the chapter info is in the other, smaller m2ts files. The menu item ‘chapter’ will not show up on the WD TV menu (by pressing OPTION). The software makeMKV solves this problem. If you process the m2ts files with makeMKV, the resulting MKV file will contain all chapter infos, and you can select chapters by the WD TV menu. If a file begins to play correctly, but stops, it’s probably corrupt.