First of all, those attempting to connect their Xbox 360 to the PC will need to install the Rollup 2 update in MCE2005 and download the software from the URL the Xbox 360 brings up when trying to connect. If you're using Windows Firewall, you don't need to turn it off, as it will adjust itself automatically. Actually, just don't turn it off, period! If you're using a 3rd party firewall, click here for a solution.

Steps

1. Be sure your 360 isn't paired up with

any other PC. To do this, go to your 360 dashboard and browse to the System blade, then Computers. Disconnect from any computers listed there.

2. Boot your Windows Vista PC up and leave it sitting on the desktop.

3. On your 360, browse to the "Media Blade" and select "Windows Media Center". Alternatively, press the green MCE button if you have a remote.

4. You will be presented with an 8 digit number. Write it down or memorize it, and go back to your PC.

5. If you're in "Media Center", you should see the Window prompting you for the numbers. If you're not, then a pop-up balloon will appear from your system tray, near the clock.

6. Enter the numbers required, then set your options for folder sharing. Select the folders you have media in.

7. Let it do its thing. Once finished, it should automatically launch MCE on the 360.

TRANSCODE 360
Transcode 360 allows you to stream unsupported formats to your Xbox 360 console. Microsoft allows very few formats through, but there's a way you can stream them by using this software.

You can download the Transcode360 utility software right HERE

Requirements:
Windows Media Center, either Vista or XP MCE 2005
A computer that's reasonably quick. I can transcode with a laptop that has a Pentium M 1.4GHZ and a GB of Ram.
Vista Codec Pack (including FFDshow)

Steps

1. Install the codec pack with default settings.
2. Install Transcode360, using default settings. REBOOT YOUR PC
3. If you get an error after the reboot, you'll need to turn UAC off. This is a pain with Vista, as you can't specify the application to bypass UAC (that I know of).
4. If you run Avast Anti-Virus, check here
5. Once you have no issues after reboots, you're ready to go.

Run "Media Center" on your 360 and browse to the movie you want to watch (can include ISO images). Press "B" on your controller, or "Info" on the remote, which brings up a menu. Select "More", then "Transcode". Wait a few seconds (depending on the speed of your PC), and the movie should start!

The information above was available courtesy of jimmy_Bish up on the Xbox 360 forums.

Softpedia doesn't encourage the use of incompatible hardware with the Xbox 360 console from Microsoft, or any software or parts that the company hasn't confirmed as suitable for use with the respective console.