[quote name='lowenbotten']You weren't helpful at all since your posting false information. I have some divx files on my pc and I watched them just fine streamed to my 360.[/quote]
Great, I searched google for hours looking for instructions on how to steam divx, the only options I found were with a transcoding program that would not work with my pc.
First of all, after my xbox system update, I installed the newest Zune player, and it still wouldn't stream xvid to the xbox 360, I tried for an hour or two to make it work.
After all of that effort, I searched the internet, I found this article, and thought with the xbox 360 picture it pertained to the xbox 360, rather than the stand alone windows media player.
http://www.engadgethd.com/2007/12/01/xbox-360s-divx-xvid-support-doesnt-include-media-center
At that point I figured Microsoft had not made the xbox divx stream compatible, but only via usb drive, so I stopped trying to make it work.
After hearing that you have yours working, I first went to the official microsoft pages:
http://www.xbox.com/en-US/support/systemuse/xbox360/digitalmedia/videoplaybackfaq.htm
They haven't bothered to update their page with the latest update.
Then I googled for a while, and found this update page:
http://blogs.msdn.com/xboxteam/archive/2007/11/30/december-2007-video-playback-faq.aspx
This microsoft blog, with info that is not available on the xbox.com web site, states that the newest Zune player (Which I put on my computer just to allow the pc to stream iTunes music and videos) does not allow divx, but the older Media Player 11 does. If you want to have WMP 11 stream iTunes files also, you need to go through some hoops as detailed in the blog.
Sorry for the false info, I tried for hours to get the streaming divx to work, but microsoft hasn't actually updated the main xbox.com site to tell everyone how exactly to make it work. I assumed that they had made it less useful so they could push their own music and video service.
At least once I figure out what they are taking about for the iTunes video codec, then I will be able to dump that zune software from my pc.