I was looking for a way to play MKV files through my Xbox360 via media extender. The most dominante procedure involves re-encoding the video to avi or something. WAY too much work. This is so easy with media extender! See, the Xbox360's Media Center can interface with your computer's Media Center. As long as the PC's media center can play the video, so can the Xbox360's media center. Now for obvious competitive reasons, Microsoft does not include all the codecs known on the internet. So your job is to augment Media Center with 3rd party codecs. You would need not only video codecs, but also audio codecs. Media Center on the PC should be able to play the media file with the right codecs installed. So far I'm able to satisfy my MKV requirements by installing DivX's codec pack through their full installer (just uncheck installation of their player), and Realtek's AC'97 audio codec. At the end of it all, your Xbox360's media center can stream all the media files from your computer. Another thing to note is that not all codecs are created equal. Some are poor and would cause some choppiness or degraded video performance. Uninstall and try something else.
Sorry for the vague post (and not pictures), but that was on purpose.