Related to the original post have just noticed that it looks like MS are doing their own thang on this. Under the extras menu a new option has appeared 'Internet tv beta 2'.
I have installed it but so far it had failed to work/load and keeps coming up with an application error so can't really say much more about it. It may be worth a look from someone else as I have a sneaky feeling it may be a geographical problem causing me the problem ie only works in the States.
Maybe someone else could give it a whirl and let us know.
Update: have just found an article below so it should work in Britain
Britain has no doubt been a key player in the Internet TV movement, with national networks all offering their share of accessible web content - the likes of the BBC’s iPlayer being the first that comes to mind.
Up until now though, Microsoft have left out the option to enjoy this internet content via Windows Media Center in the UK. Not anymore though as under the ‘Extras’ tab in your Media Center main menu, you can finally see an item listed as “Internet TV Beta 2″. The service, which is powered by MSN Video, offers a fair selection of BBC and Channel 4 shows - including the likes of Peep Show, Live at the Apollo, as well as a plethora of music videos, news content and movie trailers.
First tests don’t look so hot - the resolution is not quite as good as the BBC serves via iPlayer, and on a big screen it can get fairly cumbersome. With that said, the content is half-decent and it could make for a very nice extension to Windows Media Centre functionality, providing the video archive continues to expand, and will reach High Definition quality.
To get access to the beta, you will need Automatic Downloads on in Windows Media Centre. Go to Tasks, Settings, and General Automatic Download Options - and of course make sure that you have your internet connection up.