The main drawback of playing hosted mp3's on your xbox 360 is the maximum file limit (around 7000 i believe) and the mandatory usage of lists/templates. Media Player 11 makes such lists, so it works beautifully of course.
Thanks to the Fall '09 firmware update, the Xbox 360 can now also play Divx/Xvid media. You can plug in almost any USB memory (big or small, ssd or sata, stick, etc) to your Xbox 360 and play away.
Or use an old pc (with lots of disk space) with the FreeNAS operating system, which has Fuppes included.
FUPPES is a free, multiplatform UPnP A/V Media Server.
FUPPES supports a wide range of UPnP MediaRenderers as well as on-the-fly transcoding of various audio, video and image formats.
A totally free 24/7 media server!