I played with Transcode 360 this week, and I highly recommend that you give it a try.  Transcode 360 is a well-written (meaning user-friendly and seems polished) addon for MCE 2005 that will allow you to play back all of those video file formats that have been frustrating you for so many years on the extender.

I tested Transcode 360 and had great success with my HP extender, but unfortunately the original XBox is not liking the video stream that it’s getting which results in a jerky playback.  But as you can guess from the name of the app, it works great on the XBox 360 including 5.1 digital audio playback.

Rather than putting together several of my own screenshots, take a look a look at this blog posting.  Note that in the last couple of beta releases the author has switched away from windows media encoder (I’ve never had much luck with WME, ever) over to mencoder which means that this seems to be more performant that WME based apps.

If you have ripped DVDs or Divx files that you want to play back on an extender, give Transcode 360 a look.  There are even rumors of some integration talks between Transcode360 and My Movies.