I do not use WMC to play music on my remote HDTV's, and I use Linksys DMA2100 extenders rather than xBox (but strictly to watch recorded TV from WMC to my HDTVs around the house).
But I do have an extensive 6700 file music file collection (mix of MP3 and FLAC) all of which have tags set perfectly by me. On my PC I use 3rd-party player programs (e.g. Winamp and Jaangle) to play music while I'm working, and my PC music collection (about 61GB) is mirrored completely onto my Cowon J3 portable music player.
This represents tracks extracted from my CD collection and I make my own MP3 and FLAC files, as well as collecting (or scanning my own) high-quality 500x500 album art. My collection is organized \Music\Artist\Album, and each external "cover.jpg" is stored into the corresponding album folders. I do not imbed album art internally into each ID3/FLAC tag for music files in the same album folder, as that would needlessly duplicate each JPG.
I use MP3Tag to edit/maintain all tag data as necessary, although generally there's really nothing to do once the MP3/FLAC files with corresponding tag data is produced by Audiograbber which is my rip/encode/tag production utility. I also use LAME and FLAC as my external encoders, invoked by Audiograbber at encode-time. Ripping and tagging for MP3 is done by Audiograbber, and ripping for FLAC is done by Audiograbber with tagging done by FLAC using parameter values passed from Audiograbber.
I have approximately 540 "artist" folders, and under them I have approximately 1020 album folders (i.e. one-each for my physical CD collection). I use Musifind Pro as my CD Database collection software, and Jaangle as my MP3/FLAC music file collection/organizer/player software. I also use Winamp as my "external player" program that is the associated default program in Windows.
That's the background.
Of my 1020 CDs, about 165 are "compilation" albums (i.e. multi-artist, not "greatest hits" for a single-artist). In my Musifind Pro CD Database, these compilaton CDs are all shown with an "artist" (in the terms of that program, not in terms of the the tags on any corresponding music files) of "various artists".
In my \Music\Artist\Album physical music collection on hard drive (and J3) I have defined THREE ARTIFICIAL "ARTIST" folders to deal specifically with "compilations":
OLDIES COLLECTIONS
SOUL COMPILATIONS
SOUNDTRACKS
Music files from all 165 of my "various artist" compilation CD albums are filed in album folders (for that compilation CD) underneath one of these three "pseudo-artist" folders (which is at the ARTIST level in my \Music\Artist\Album organization). This is all consistent.
Now I do not fill in any other primary tag fields than are actually displayed by my 3rd-party PC player programs and my Cowon J3. These primary tag fields are: artist, album, title, genre, and year. Additional tag fields or comments that are inserted automatically by Audiograbber may be "mass produced", but no other primary tag fields are populated. They are all blank.
In particular this includes "album artist", which I leave blank in ALL of my tags... including for music files coming from compilations. I'm not actually ever browsing for an album artist named "various artists". I'm only browsing for a song by a particular performing artist... i.e. the "artist" tag field (which I correctly store for individual tracks on music files from compilations). I really don't care what physical album it came from, nor do I want to play music from a "various artist". I want to play music either (a) by that performing artist, or (b) by a particular song title. And "performing artist" is actually the value stored in the "artist" tag field. Again, "album artist" is blank... not filled with "various artists".
In fact, when I want to play music by "performing artist" what I want presented to me is EVERYTHING by that artist... including music files from their single-artist CDs as well as any assorted tracks by them on compilations. Again, this is all accomplished through the use of the "artist" tag field value (on both PC music player programs as well as on my Cowon J3). There is NO use made of the "album artist" tag field (in my own player resources) for anything other than purely indicative purposes had it been filled in and not blank.
Now, back to your own WMC issue, which as you describe it seems to be tied directly to your use of the "album artist" tag field for these compilations, where you've inserted "various artists".
If in the presence of BOTH "artist" and "album artist" tag fields being populated it appears that WMC selects the"album artist" value for use (i.e. "various artists" for your compilations), why don't you just use MP3Tag to single-click purge the "album artist" tag field for all your compilations (i.e. whose "album artist" tag field value is "various artists")? Just blank out the "album artist" tag field for compilations, and don't use that field. Then there will only be the "artist" value non-blank for that track and WMC should use it. Seems like the answer to your dilemma.
It is only redundant for single-artist albums, to have the same value stored in both "artist" and "single-artist". And as a general rule PC players and portable music players don't display "album artist" info onscreen. So why use the field at all? Does "various artists" provide any information to you? You are really only interested in true "track artist" (i.e. "performing artist") for individual tracks within both single-artist CDs and multi-artist compilation CDs, so why not just strictly use the "artist" tag field?
Seems like blanking "album artist" (either in all music files or just your from your compilations) would be your solution for what would be shown by WMC. I'm sure it uses "artist" when "album artist" is blank.
MP3Tag can be used to single-click blank "album artist" in all of your music files. Or, you can use it to "filter" just those music files which currently have "various artists" in your "album artist" tag field, and then you can blank out that value in all of these selected/filtered files found from its search.
Why don't you just try that... blanking "album artist" on a few files manually which currently have "various artists" in that tag field? And then see if WMC now displays the "artist" correctly for that music file coming from a compilation album.
If it works, then that will be your mass solution and MP3Tag will clean this up for you in a single-click.