…it will fail. The post below this one shows that Jason Dunn got a chance to play with the Xbox 360 and the Media Center Extender functions. He is thinking that it will only support WMV playback (and DVR-MS of course). If you are going to limit the playback formats of the Xbox 360 it will fail as the product you want it to be getting media around the house.
So, here’s what you do. Unlike standalone Extenders we have now that use dedicated processors to decode the media, the Xbox 360 will have more then enough power to do full software decode. Your going to need to use the Xbox Live Marketplace to allow people to purchase software decoders for third party formats. This will solve the problem of licensing it and included it in the shipping Xbox (which raises the price). Let the third parties develop the codec’s and sell them at there set prices.
I’ll be happy then, and so will most other people.