I had same test on this issue.
Yes as you said if you delete %APPDATA%\XiboClient.xml (roaming folder) file, player goes to factory default settings.
If the file does not exists, Player tries to connect the server (but no server information) after 2 minutes WatchDog says “Activity Threshold Exceeded” and restart Player, this loop continues always. By the time, %APPDATA%\XiboClient.xml wont created (because no healty server connection)
If you open xibo player options, and reenter server information, (I think it recreates hardwarekey), you need to Delete&Add the player and authorize from CMS.
SOLUTION: (it saves you from the issue but I still dont know how the problem occures)
After installation of Xibo Player, goto installation folder, usually (C:\Program Files\Xibo Player) and
Modify those rows as your information;
<LibraryPath>C:\xxx Your Library Path</LibraryPath> <ServerKey>YourServerKey</ServerKey> <DisplayName>COMPUTERNAME</DisplayName> <ServerUri>http://yourUrl</ServerUri>
When this problem happens and player goes to factory default, then Player reads information from this file, (because we add server information to this file) player get settings and could reconnect your server again. If you have all files in your Library, everything will be fine on CMS and Player side. And Xibo automatically creates XiboClient.xml file on %APPDATA% folder.
I hope this helps, but still need a real solution.