In my quest to find a solution to stream movies from my VMC PC to my XBOX 360 dashboard, this was before the release of the fall update that added support of the DIVX codecs to playback AVI's and before I was able to Transcode successfully in real time using Transcode 360, one solution I discovered was to add file support in to WMP11 / VMC for MP4 files.
After running a registry hack and then adding a watch folder in to WMP11 to point to my MP4 movies and enabling WMP11 media sharing with my XBOX 360, this then allowed for the playback of those MP4 movies via the media blade in the XBOX 360 dashboard.
After trying many registry hacks this is the only one that fully works and not only enables the MP4 files to be visible but for them to be played back in the XBOX 360 dashboard.
If you also want to add support for other file formats as well, such as M4V / M4A or you have a 64bit system please visit this page. The author there is the source of the MP4 registry hack I used on my own Vista 32bit system which can be downloaded from me here.
You will also need the right codecs installed on your PC, I would recommend Fddshow Tryouts and the Haali Splitter or just the K-Lite Full Codec Pack.
Disclaimer: Use at your own risk and ensure you have a full backup of your registry before applying the reg file. This is a hack for Vista 32bit and has not been tested on MCE 2005.