With the 360 I know 100% for sure that you can run:
divx/xvid in .avi with mp3 audio (stereo)
h.264 in .avi with AC3 audio (surround)
WMV in a .wmv with wma (surround)
h.264 in MP4 with AAC-LC audio (stereo)
You can't mix and match though (like having H.264 in MP4 with any audio format other than AAC-LC). Why? I have no clue.
Your hard drive needs to be FAT32. I don't think the 360 can read NTFS when you plug them directly into it, but you can plug your HDD up to your computer and stream the data to your 360. I do it all the time.
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