Ok I went back and found some of my previous posts in regards to xBox360, one thing I do recall is WMC on Vista is very restrictive and does not support AVI files, all my testing was done with WXP and WMP11.
Following is what I dug out:
You might also try the generic.avi.xvid.audiocopy. xBox supports these files and they rip faster.
Xbox 360 will pass through DTS from a DVD but willnot decod DTS from a streamed file.
OK I stole my step daughters xBox 360... hey it's pretty cool......and hooked it up to my development environment.
Straight up it had no problems playing WMV files I had created prior to discovering DVDfab.
Next step I choose an avi file (Bangkok Dangerous), gave me an error messege that I needed to connect to xBox live and update the system. So I go through the sign up process and connect to xBox Live. I go back to media an tryto kick off BD, and I get the same message, except now there is a button to perform the upgrade. I select upgrade and 30 sec later Bangkok Dangerous is playing in all it's glory.
Bottom line, if the xBox360 profile is too slow use the Generic.xvid.avi.audiocopy profile.