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In addition to a host of enhancements immediately noticeable, yesterday’s Spring Xbox 360 Dashboard update also brought with it greater compatibility with various video formats. To clear up any confusion Microsoft has released a fairly comprehensive FAQ on the subject of video playback.
Essentially the Xbox 360 is now capable of playing mp4, m4v, mp4v and mov files using the H.264 or MPEG-4 codecs. The console is also capable of playing WMVs created using a host of video profiles.
The new update does not enable the playback of DivX video files.
For more complete details head over to the Xbox 360 video playback FAQ.