Dont know if this helps but i have found a way to play videos on the xbox fine, just dont use media center
this makes no sense to me but this is what i have done,
Step 1. using xbox360, make sure your connection is good when you go into system settings - network settings -test pc connection
Step 2. goto My xbox, select video Library -user name pc <--- this is the name of your computer. once you select this you might get a message that says you need to activate your console from your PC" do step 3
Step 3. using your PC windows 7, select start - control panel - network and internet - under network and sharing center select, view network computers and devices. ( you may need to accept message about viewing network devices accept it)
Step 4. once inside network computer and devices, you should see 3 options 1.Computer 2.Media Devices 3.Network infastructure. under media devices you should see an xbox 360 Icon.
Step 5. Right Click on the xbox360 Icon. Left click using the mouse on media streaming options. Over on the right you will see boxes make sure they all say "Allowed" beside them and then click the ok
Step 6. open up the windows media player. Swtich to Libray view. on the top left hand side select Organize, then scroll to manage libraries select videos. Choose the folder that you have where your videos are stored in
step 7. using Xbox 360, go to "my xbox" select video Library -user name pc <--- this is the name of your computer. You should now be able to select the folder that you have your video stored in..
Step 8. Please make sure that you are signed into your xbox360 live account, or sign in using your xbox360 profile account. Otherwise you might get an error message when trying to watch your video. Please remember that you must be sigend in frist then view your videos.
Step 9. your done!! you should be able to view videos from your PC
i got the info from How do i activate xbox 360 to my windows 7 pc - Network-General-Discussions - General-Networking
you just need to remember to share any folders you add to the library with your network.
this still does not explain my original problem though and i would still like to be able to use media center to watch videos but at least i have one way to do it