The Xbox dev team has posted an updated FAQ
answering a smorgasbord of video playback questions. Confirming the results of Joystiq's own tests -- yep, DivX and Xvid files now play perfectly -- the guide acknowledges support for MPEG-4 Part 2 (Simple and Advanced Simple Profile) videos, which will be playable once tomorrow's update
has been installed. The post does note that additional functionalities (menus, subtitles, multiple audio tracks, etc.) that are sometimes contained in DivX files will not be supported by Xbox 360, and in some cases can render such files unplayable. Though, for the most part, all of your BitTorrent'd cache will play whether streamed from a computer or fed directly from a USB storage device.
The Xbox Team's guide also gives pointers on how to organize your files into a hierarchy that takes advantage of 360's sorting filters and how to associate a thumbnail image with each video, in addition to a list of gamepad shortcuts: Push 'Start' to begin video playback from a bookmarked position and bypass the Resume/Restart sub-page. But it's not all just "duh" tips, the FAQ gets into the nitty-gritty of BVOPs, quarter pixel motion compensation, and even ... quantization! (Yeah, we're just gonna keep on pretendin' like we know.)