“Apple TV Apologizes” cartoon posted on recode.net nails the problem on the head.
What’s crazy is that this New Apple TV (4th generation) can use your iPhone via Bluetooth to speed setup without having to manually input information, but entering your password becomes more painful compared to older Apple TV models. Entering text on-screen using the former block-arranged alphabet was tedious, but much quicker than this single line of characters. At launch, there is no support with Remote app (supported as of tvOS 9.2 in 2016) which was very handy for entering text and pasting passwords. Bluetooth keyboard is not supported in 4th generation TV (support.apple) in 2015. (Support added in 2016.)
Poor interface designs encourage users to create short, simple passwords. Exactly the opposite of what Apple should be encouraging. One could avoid apps requiring logins, or use iPad instead. If you don’t like storing your password on Apple TV for iTunes rentals, you may rent on a Mac or iPad and stream to TV.
For those hoping for an improved navigation experience, forget it. Same layout, but larger icons means more navigating. Apparently Siri is Apple’s primary answer to tiresome on-screen navigation clicking/swiping.
Update: Remote App updated for 4th generation Apple TV, and tvOS 9.2 (early 2016) includes support for external keyboards. I highly recommend using Remote App for entering text. Speaking to Siri is another password entry option, but tedious for strong passwords. The update also includes minor improvement to navigation.
Update WWDC: Apple announced “single sign-on” feature for tvOS coming later in 2016 enabling supporting apps to sign on just once reducing the need to enter passwords for difference subscription services.