Since my original post, some aspects have changed – namely the X360 added Xvid support negating the need for a more complex setup if you just want Xvid. So here’s what I now recommend:

If you just want to play Xvid (and WMV) – then simply install WMP 11, and in the Tools->Options, Library->Sharing, share to your 360. Then simply add your media directory to your WMP library. Pretty easy.

If you want more features (namely transcoding of unsupported media files), and are happy to do a bit more setup, then install TVersity. Use my guide, and the TVersity Quick Start Guide. For me this worked easily on XP (don’t forget your firewall settings!) but it can be a real pain on Vista. My brother finalled managed to get it to work, following the steps here (also copied below after the jump).

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What a turn-around! The PS3 announces DivX support officially, with the X360 quickly following with MPEG4 support (which conveniently also adds DivX and XVid), and delivering it sooner, then when the PS3 support does arrive – XVid support is quite lacking. Makes me glad to have a 360 instead…

Up until today, streaming content with a program like TVersity was the only way of playing Xvid movies on your Xbox 360. It had some drawbacks in requiring complicated setup, a computer to be running, and a very good computer for HD streaming.

Today Microsoft added MPEG4 support, through which Xvid playback is now possible. Their move follows a recent update on the PS3 to support DivX. So now everyone is happy. This is good news indeed, as it means the X360 can play Xvid from any source, including the internal HDD, a networked computer (without having to transcode), and best of all burnt DVD’s. Not only that, but it can handle high resolutions, and upscales nicely to 1080p using the hardware upscaler that does such a nice job on DVD movies.

All you need to do is download a 3MB update, the first time you try to play an Xvid file.

The 360 certainly just got a whole lot better as a media device!

The X360 can play movies on its HDD and also stream them from any networked computer. Catch is it doesn’t natively support Xvid. Assuming you don’t want to hack your 360 (and thereby lose XBOX Live), you can use TVersity to convert XVID on the fly and stream it in a format the XBOX can play. Best part is it uses the XBOX protocol so you can browse your folders on the 360. Unfortunate part is you can’t fast forward or rewind – though pause does work and playback is of a very high quality.

Here’s how:

1. Install Windows Media Player 11
2. Install TVersity (install the ffshow codecs when prompted, default settings should work)
3. Open port 41952 in your firewall (if Windows Firewall, unblock TVersity and also add the port using “Add Port”)
4. Visit http://localhost:41952/ to view TVersity. You may need to reboot before doing this.
5. In TVersity settings, select Xbox 360 as playback device, and under transcoder, increase resolution to 640×480 (if you have a semi-decent computer)
6. Disable all other media sharing programs and connect to your PC from your 360

TVersity also installs a new right click option in explorer which is “share this folder with TVersity” which is extremely convenient.

References:
Quick Start
Playing DivX and Xvid content on Xbox 360 – An easy guide!
WMV coming to 360, can TVersity support it and transcode? (a bit out of date, see update)