You can watch .wmv files from an external with the 360, but it has to formatted in FAT32 or if you have video files bigger than 4gb, in the HSF+ file format. I currently use a 500GB external and stream hi-def wmv's to the 360, and the quality is fantastic. who needs blu-ray or hd-dvd!
Why do you have a 500GB external AND stream movies to your 360?
Why do you have a 500GB external AND stream movies to your 360?