When I first got a WD TV Live (about 2 FW revisions ago) I had problems like the OP when using WIndows (SMB) shares from my LG NAS. I found that setting up an NFS mount (WD calls it a Linux share) to the exact same folder cured this problem and allowed all the media files to play with no lockups, reboots etc. still using a wireless connection. This tells me the problem was something to do with SMB on the WD TV Live, though perhaps the combination of SMB + wifi + media file types caused the problem to surface. I reported the problem to WD support and received a response but I never pursued it because the NFS share did what I needed. I have been running that way ever since.
Since then, FW 12.14.1 came out and I installed it. When I read this thread I set up a share on my Windows 7 PC and played with it a little. I had no problems, but I only watched a few short videos for maybe a half hour - nothing like really watching movies on it.
It doesn’t sound to me like the OP’s WD hardware is bad because he was working good on the older firmware. What I suspect is Windows networking. I’ve always felt that their automation had the potential to mess things up by trying to make it so “easy” to configure the networking. For example, if you have several PCs on your home network it can take some time for them to all show up in Network Neighborhood (or whatever it is called now). There are concerns with the “Master Browser” as well as authentication/credentials. Sometimes things that I set up would not work and after they sat a while they would start working fine.
If I was the OP, I would load the latest FW, then rename the WD TV box and maybe even set a new/different hard coded IP address, then do a restart on the WD box (my intent is to make Windows see the WD TV box as a completely new client that it has never seen before). Then I would be a little patient and see what happens, giving it like 15 - 30 minutes. Also, on my Windows box, I set up a special user profile and password (regular, not Admin) just for the WD boxes to use, and I give it (only) Read access to the shared folder containing my media files. Of course this only becomes relevant if your WD TV Live actually sees your Windows machine.
Anyway that’s what I would try. I’ll set my WD TV boxes to use Windows shares and see if I still have problems over the next couple days like I did at first.