Yeah it's always been possible. Only problem with it is that it can't see NTFS formatted drives so you're limited to either FAT32 (with 4GB per file size limit) or HFS which involves having to use a 3rd party app to read/write/format.
As far as I know you could always play them from an external source, just not copy them onto the 360 from there. I have always copied files onto a USB pen drive and played them directly from there since DivX was enabled.
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