I spoke too soon, I am now playing AVI files on my XBOX 360 MCX natively ! Even the Fast Forward is working on all 3 increments, which wasn't working properly in Media Center on my PC.
I had to reinstall the Optional Media Update, I had aleady installed on the XBOX 360 dashboard ages ago you remember that MP4 dashboard update that one. I guess there's something new in the update or the Windows 7 back-end just makes it work now!
Whatever I'm very happy now MS you rock!
Thank you! [:D]