This is a very interesting development, a hack has been released that enables the DVD Library in VMC on the extenders. There was talk of just such a solution on the Green Button awhile ago now, I guess this is the result of those discussions.
This is a hack and your extender will still not natively play DVD vob's. This is a method that tricks the extender in to thinking a .vob is a .mpg file, with the use of symbolic links.
Also you will only get the main movie on the extender no menu's or extras.
DVD Library on Extenders - How To Guide
Here's the new discussion about it on TGB
I like what these guy's have done and it's a step in the right direction, but for me personally having already converted my DVD's to DVR-MS format as well, I think I'll stick with the My Movies add-in for use on the extenders.