First off why are people still asking what video formats the 360 will play?
THE 360 WILL ONLY PLAY ONE TYPE OF VIDEO FILE!!!
Next, to the guy whos external HD wont work, try the USB ports in the front, the one on the back is for the USB WiFi adapter so posibly wont work for media.. Just a thought cant be assed to take my HD downstairs to find out.
As for a turorial to connect a external HD, sorry but do you want a tutorial on how to plg in your controler to? Its realy so simple its untrue. Your only making it hard cos your trying to be complicated about it.
The 360 wont work with NSD's it is running UPnP as its used in the Media Extender system. But its just not desidned to. It also wont work with Media Extender functions if the files are stored on a NSD rather than on the PC running MCE or Media Player 11. So you best bet is to run a Media Server. Then you can stream your media to whatever device you want :) Currently my Media Server is streaming to the 360, 2 other PC's in the house and my PSP :)
Saves a fortune on storage space...