Microsoft's Xbox 360 allows you to connect your console with your computer via Media Center, even if you don't have Media Center version of Windows, you can still rig it so it works. Another alternative is to use TVersity, which streams videos and music to your Xbox360, the great thing about this application is it converts video to the suitable codec on the fly. TVersity also works with PS3, you can find it here: http://tversity.com/

What I did instead, was just plug in a huge hard drive to my Xbox 360. As long as your AVIs aren't using odd audio codecs (or are beyond MPG and AVI/DIVX/XVID) you'll be fine. In the event your audio codec is off, you can download many utilities to update your audio codec (i.e. Lame MP3).

The Xbox 360 uses a Fat32 partition, and will not read NTFS. Also, if you try to format your hard drive on your PC (to a Fat32 partition), even from the command prompt, it will fail, because it will be unable to format a hard drive over 2GB. What you can do is download a application (Partition Magic) to fix this. I took the easy way out and just formatted the drive from a mac (OSX). It had no problem formatting the drive in a Fat 32 compatible partition.

Now I have a 1TB drive with thousands of movies and songs. The only catch is that Microsoft charges you, I think, $3.99, for a one time download to play DIVX movies. I also use USB keys (FAT32) and just plug it into the front of the console to view/listen to recent media.