I have been using my Xbox 360 with my HDTV for media streaming for the past two years. I use Tversity to stream media to the Xbox 360. Tversity converts incompatible formats in real time while streaming. This process is not perfect, but it works. You can also use Media Center, Media Player 11 or Nero home to stream stuff, but then you are limited to the formats supported by the 360 software
As mentioned, the 360 needs to download a codec from the net the first time you play an divx/xvid file. This is a once off thing (until you update your Xbox Dashboard software, then you have to do it again).
The Xbox 360 does not play the following on it's own (but with tversity it can) MKV, Mpeg I, Mpeg II, RMVB / RM, Mov, Vob, Mp4 - I find the lack of Mpeg support quite odd.
It does play the following (very well) Divx, Xvid, Wmv and high definition content in any of these formats. I find the WMV support useful - No MM player plays it
In general terms, the xbox 360 does not allow you to copy media content to it's hard drive. There are ways, but it's too much hassle imho.
A wireless network between the 360 and the pc is not ideal, especially if you plan to stream HD content. A cable is the best way.
Most firewalls have huge issues with media streaming. Bitdefender (at least the last version I used) had enough issues for me to switch to Kaspersky. Kaspersky is better, but still not perfect. It often reports that the 360 is launching network attacks... but I have found ways to get it working.
I own an IPTIME mm player (and also a cheap Isonic 2.5" player). My Iptime is not too bad and I am using it in my bedroom at the moment. The Isonic is just plain k*k - nothing more to say about it.
For <R2000 the Xbox is a very decent Media streamer and in my opinion the perfect solution. You cannot build a decent Media Center PC for that price. It is much more convenient for me to share stuff on my PC Hdd with the 360 rather than having to copy it over to a mm player every time.
I have just bought a PS3 and it seems to be just as good (if not better) than the Xbox 360, but I have not tested it enough to give proper info on it yet.