Now that I've finally got a 360, I am determined to retire the old classic xbox from my living room (which is currently modded and running XBMC). The media streaming options on the 360 are quite impressive, once you get them working and use a few work-arounds. The problem is getting the dang thing working. I hooked up my 360 the 25th and I've been working off and on since then and just today I've finally gotten everything working. I'm now able to stream every single file type I had on my xbox to the 360, including odd ball ones like mkv and divx with ac3 audio. In addition, I can now stream full 1080p movies in any format without lag!
So here's how I did it:
1. If you have wmp11, zune media player or windows media center then FRIKKIN DO NOT USE THEM TO STREAM!! Ironically the m$ products pretty much don't work, or don't work well with the 360 even though those are the products you are supposed to use. If you have media sharing turned on in any of these then go ahead and turn it off, it'll interfere with what you need to use.
2. Get yourself a copy of
Tversity and install it. Don't worry about configuring it for now.
3. Install the tversity codec pack along with the program. You'll also need fddshow and the haali media splitter for Divx and mkv files respectively. (Search google for them to get the latest versions.)
4. Note: This step is CRUCIAL for good streaming of non-wmv formats!!! At the start menu go to run and type "services.msc" to bring up the services settings. Look for the TversityMediaServer service and go into log on. You want to select "this account" then click browse. In the box type the name of your administrator account for your computer and click "check names". It should fill in the path for you if it finds the account so press ok. Make sure you also put in the password when you return to the dialog box. (Note I found out that if your admin account doesn't have a password set then this won't work, so be sure to set a password via user settings in the control panel if you don't have one!)
5. Go ahead and load up Tversity. Go to the sharing tab and click the "+" button to add a folder. You want to add the folders for all of your music, pictures and movies. (Note only the root folder is needed, it'll scan sub-folders). When adding the folder, click the advanced tab and make sure only the necessary media types are checked at the bottom. This will greatly reduce scan time later. Note that you can add rss feeds, podcasts and aother online media as well! Go ahead and go to advanced/ recreate media library when done. Now go get a sandwich or something. Seriously man, if your music collection is as large as mine, it can take up to 40 min for this first scan. You'll see a little circle animation in the top right corner, when it's done scanning it'll go away.
6. Now we need to tweak things...... Note that I couldn't get full codec support at full 1080p until I set these settings EXACTLY as described. Go to the settings tab and click on transcoder at the left. UNCHECK the "decrease the bitrate" box as this feature seems to always think your network is too slow for hd content even though it should play just fine on a "quiet" network. (Important Note! I discovered that certain hd mkv files work best if it IS checked, so you might have to play with this setting depending upon the file types you prefer.) Set the video resolution to 1920x1080 (hd resolution). If you don't do this then hd content will play, but it'll be down-sampled to a horrible 400x300 pixels. Make sure the "use directshow" box is checked and set the encoder type to "Microsoft Mpeg-4". (You can use any of them, but this one takes the least amount of resources.) Make sure "decode media as fast as possible is checked.
Ok, in theory you should be done. Enjoy being able to now stream ANYTHING to your 360, even more things than on the classic modded xbox!!!
Troubleshooting
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Media doesn't play and I get a generic "file not supported" error on my 360:
You need a codec installed on your pc. Generally google searching "tversity" and the name of the file type will yield the best codec to install. Once you get it installed, fire up tversity and try to play the file within the program. If it plays then the codec is working, if you get an error then it isn't.
Media seems to play, but all I get is a blank screen on the 360:
See step 4. Tversity needs special permissions to decode a streamed file, if it doesn't get these permissions then you just get a blank screen.
Playback is choppy:
First off, playback inside tversity itself is always choppy as it's a crappy flash based player, but it should be ok on the device you are streaming it to. Make sure you "quiet" your network before playing hd content. By quiet, I mean turn off utorrent or any large downloads on all connected pcs and devices. Hd content takes a lot of bandwidth when it's being converted on the fly. Of course there is always the possibility that your pc is struggling to convert the videos. This is unlikey as what tversity tries (keyword tries) to do is "wrap" the file instead of actually converting it, which tricks the xbox into thinking it's a wmv file and this doesn't take much processing power. It might have trouble if you have a lot of applications running though.
Subtitles and Dual-Audio Problems:
You should be able to change the audio and turn on subs via the playback menu on the 360. More exotic subtitles, unfortuantely aren't always supported. Fortunately, most fan-subs are available in many formats, so you can often download new subs for your video without having to download the whole thing again.
Protected video files won't play:
Duh, drm + m$ = bad.

Download a cracker program for the file. Don't ask me where or how (even in pm).
Tips
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Make sure you have the latest version of tversity and your 360 has the latest updates installed. Full file compatability has only been possible since Dec. 30th!
Do NOT setup tversity to auto-refresh your library. I found that music files take a long time to scan (maybe because of the tags?) and it's best to re-scan manually when you know you've added files. My music folder generally takes a few MINUTES to re-scan, while my video folder, which is actually about the same size, only takes a few seconds. You re-scan an indiidual folder by right-clicking on it in the sharing tab and selecting refresh. Of course another option is to simply not share music.
Start using hd videos instead of standard def files. The real beauty of this system is you can now play lots of nice hd content at 1080p, which is even higher than the hd content you download from xbox live (generally only 720 p). The popular hi-def mkv files will indeed work. That was the whole reason I went through this.

Hd wmv is natively supported as well.
If your netwok can't handle 1080p then use 720p files. This is unlikey to happen, but hey, 720 is better than nothing.
When something doesn't work, check this guide and avoid user suggestions elsewhere on the net like a plague. This took me so long to setup because a lot of the advice on the net is outright wrong. I simply collected up the good advice and put it in this guide.