Update 10/23/2011: Netflix just released yet a new version specifically to fix their recently introduced CyanogenMod 7 video compatibility issue. I can confirm that now everything works fine on both Netflix and TouchPad, including the subtitles.
Netflix released their new Netflix player version for Android devices today adding the long awaited Android 3.x support, subtitles and Canada/Latin America support. This is all nice and peachy. What is not so nice is that some CyanogenMod devices are not supported properly anymore. I was able to personally test that CMP Nook Color ad HP TouchPad don’t show video anymore, just audio (and subtitles if enabled). The previous version (1.4.1) works well and if you are in need for the Netflix apk file, you can always find them in here. Some apk versions even have the automatic update check disabled.
The new version is available for free in Android Market.