*Updated!

The xbox360 doesn’t like divx/xvid files that have ac3 sound tracks, so we can use mencoder to convert these files so they use 128kbit stereo mp3 soundtracks instead. This isn’t too hard to do, just use a command similar to:

mencoder input.avi -ovc copy -oac mp3lame -lameopts cbr:br=128 -channels 2 -o output.avi

Easy when you know how.