Are the MPEG files you are trying to play compressed via DIVX? If so, they will not play on the 360... this is Microsoft covering their butt's from the MPAA and the torrenting of movies. MPEG files that are not compressed with DIVX will play on the 360 just fine. On a side note, if you buy the HD-DVD player for the sytem the firmware update for the 360 allows you to view just above every video format other then DIVX on the 360... I can even stream .MOV (Quicktime) files to my 360 now from my computer. The 360 could easily support the DIVX codec but again, Microsoft is appeasing the movie studios by not supporting it... especially since Xbox Live now offers digital move downloads.