There are huge differences between the Gen 2 and Gen 3 WDTV Live’s. A friend of mine had the Gen 2 model and it worked perfectly. He upgraded to the WDTV Live SMP (Gen 3). He always used an attached HDD. When set up the new one had a flicker on the screen which at times caused the audio to drop for a few seconds.
He used the Gen 2 power pack and the Gen 2 HDMI lead, all of which gave a perfect outcome for his Gen 2 but not for the Gen 3. The HDMI cable was replaced and all flickering, sound drop out problems ceased immediately with the Gen 3.
You can’t compare Gen 2 with Gen 3.
As someone says above, check your leads!