Xbox 360 Autumn 06 update will steam movies from non media center PCs
After the rumour came out saying that they would do then, they denied it, with the latest update to the xbox 360 you can now .. finally.. stream movies from a windows XP machine. Unfortunately only wmv is supported but its a step in the right direction...
Videos can be streamed from a PC running Windows Media Connect, Windows Media Player 11, or the new Zune client player, and can also be played from Optical Disc and most USB mass storage devices.
How do I create videos that will play on my Xbox 360?
Windows Movie Maker, a standard feature of Windows XPSP2, will output WMV video files compatible with the Xbox 360 console. Either use the default settings when you finish a movie and click "Save to my computer," or just make sure that the output video format you select shows the file type as "Windows Media Video (WMV)."
Videos will usually look best when they are closest to the original resolution that they were created with. Try to create video files at least 360 pixels high in vertical resolution in order to minimize content upscaling on the console.
If you decide you want finer control of the output video file format, download a version of Windows Media Encoder (http://www.microsoft.com/windows/windowsmedia/) and then start encoding away. Optimal size and bitrate settings will vary depending on the source material you are encoding. As a general guideline though, 1.5 Mbps is a typical bitrate that should be suitable for most standard definition content, and 8 Mbps is a common bitrate for high definition content.