I've seen heaps of people asking how to do this of late, with heaps of different answers.
There a heaps of ways to do this, recoding Divx to MPEG4 is the best soultion, as they're playable from Media Player 11, and native to the 360 so you don't need to stream.
You need a computer with a Newer CPU (Pentium 4 2Ghz+ or Athlon XP), and at LEAST 512Meg RAM. Older computer will do it too, but you may have issues with Virtual Memory etc.
STEP 1: Aquire the following software (It's all free, so don't stress!)
Videora Xbox360 Converter:
http://www.videora.com/en-us/Convert...0/download.php
Windows Media Player 11:
http://www.microsoft.com/windows/win...Downloads.aspx
K-Lite Codec Pack FULL:
http://www.free-codecs.com/download_...hp?d=3690&s=95
Install all of the software.
STEP 2: Open Videora XBOX 360 Converter
STEP 3: Click the Convert Tab at the Top, and you should get the VideoWizard. I fould this wizard to be useless, so don't use it.
STEP 4: Next the VideoWizard Tab under the Convert Tab there is a second tab Current Conversion - Click that.
STEP 4: Click One-Click Convert Button
STEP 5: Locate .AVI file for Recode.
STEP 6: Wait. Make a coffee, go see a movie, this may take a while. This is now recoding the .AVI file into MPEG4 @ 480P resolution, enough for a majority of TV, and a similar res to 99% of downloaded .AVI files.
When Finished, it will create a folder in your My Documents Folder Called Coverted Videos\Xbox360\MPEG4\Video.mp4
You can add this file to your Windows Media Player 11 library, and if you have media sharing to your Xbox enabled, you should be able to see the movie. (If you haven't done this already follow this easy guide:
http://www.arne360.com/2006/11/05/ho...60-with-wmp11/
Volia, your new .MP4 file should now play on the XBox without the need for TVersity or Transcode360 under Media Centre.
Have fun kiddies....
EDIT: Just so you know, Under Windows Vista, on a Core 2 Duo 2Ghz, it took around 40 minutes to do Flushed Away DVD Rip in a Xivd codec to 480P Mpeg 4.