The pausing / freezing only happens during playback of recorded programmes. The picture does not break up into pixels/macroblocks - it just freezes for seconds or minutes, then resumes in a stop/start manner and finally continues to play normally.
All menus work fine when this is happening. Watching live TV or on-demand is not affected.
Our new Tivo V6 is installed and working well. It's just like the old 1TB Tivo but better as it can record more programs simultaneously. I even transferred all my series links, thumbs and wishlists across so it didn't need much setting up.