So, thought i’d post this frustrating issue and simple fix and hope it helps someone.
I have a NVIDIA Shield with 16Gb & 2TB SSD over USB. TV is supplied through HD Homerun and both connected to a manage switch.
The error I had was when Shied ‘Surround Sound’ was enabled, Netflix would not play 5.1 sound which is its default setting. But with ‘Surround Sound’ enabled Plex would direct play happily, no issues.
If I turned ‘Surround Sound’ off, Neflix would play sound but Shield would give a Live TV error transcoding AAC_LATM. It would play video and sound but then lock up, restart, lock up etc.
After a lot of messing around with settings, leaving ‘Surround Sound’ set to ‘Auto’ on the Shield and simply turning off ‘Hardware Acceleration’ on the Plex server fixed the issue. Now both play happily with no problems.