Just plug in HDD...?
Well, to be fair, (and this is INSANELY ridiculous...)
The only supported file systems are FAT (16/32, iirc), and HFS/HFS+. Also the Zunes, but those likely use FAT32.
HFS/HFS+, as some may know, is an Apple-only file system. Why on earth would MS support that, and not MS' own NTFS, is beyond me.
In addition, the xbox is rather picky about what it supports. I tried converting files for it a while back, I think I ended up just using h264 Main Profile, 720p max res, 8mbps max bitrate. 192kbps stereo audio. I didn't feel like experiementing, and those settings are roughtly along what I have seen recommended.
All that is with the "Optional Media Update" you can find in the XBL marketplace.
It's gotten bad enough, I just connect my laptop to the TV (since I also have no FAT32 formatted external HDD, either...).
I haven't tried with the new dashboard, but I guess I'll wait until the official dashboard update before I dip my toes into that frozen bucket again.