Regarding your first question, I'll add it to a list of features we want to add in the future since that seems like a good idea other users would like to see.
I've looked on the Xbox360 site, and it should play mpeg-2 files. The template encodes it into a vob mpeg-2 container type, here is the list of what it supports which was obtained from:http://www.xbox.com/en-US/pcsetup/xboxmediafaq.htm
The following types of media are supported when using Windows Media Center with the Xbox 360 console:
- Windows Media Video (WMV) 7, WMV 8, and WMV 9
- Maximum resolution of 1920x1080 (1080p)
- Windows Media Audio Standard or Windows Media Audio Pro audio
- WMV content may be Windows Media DRM-protected
- MPEG-1 with MPEG-1 layer I or II audio
- Maximum resolution of 1920x1080 (1080i)
- AC-3 or MPEG-1 layer I or II audio
- WMV Image 1 (Photo Story 1 & 2), and WMV Image 2 (Photo Story 3)
- Windows Media Audio (WMA) 7 through WMA 9
- WMA Standard content may be Windows Media DRM-protected
- WMA Professional
- WMA Professional content may be Windows Media DRM-protected
- WMA Lossless
- Windows Media DRM protected WMA Lossless is not supported
- Other formats that have a DirectShow decoder installed on the host computer that outputs pulse code modulation (PCM) audio
Perhaps adding in the option to convert to either mpeg-2 or wmv might be wise. Again, I'll see what I can do about adding this into a future update for you.
Glad you're liking the software, let us know if you have any other ideas or thoughts on it.