"The Xbox 360 supports files encoded using MPEG-4 Part 2, Simple and Advanced Simple Profile. These files are often referred to as Xvid or DivX� video files. Many common PC DVD authoring tools, cameras, and camcorders are capable of encoding files using MPEG-4. Note that some files authored for DivX devices may also contain additional functionality(menus, subtitles, multiple audio tracks, etc). The Xbox 360 will attempt to play these files, but does not support any of the additional functionality and in some cases will be unable to play the file."
The above quote is directly from a post by the Xbox team on MSDN. I know lots of people have been waiting for this, so very soon, there should be a lot of happy campers out there.
360 Update to Support DivX
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