bad: Install one of these media server apps, and *hope* it will maintain a connection with the 'media server' long enough to transcode it for you.
worse: Alternately you can swim in a sea of crappy converter programs (some of which have complexity that boggles the mind) and spin your wheels waiting for the file to copy itself in a fancy way all the way to 90% then croak on ya.. VLC does seem to work most of the time, ImToo also works. Both are PAINFULLY SLOW, even on a high-end pc.
The correct answer here is a formidable codec package for ps3, or player applications, etc that can recognize XviD, and myriad of other codecs out there... I'd buy the player application on a blueray disk, it would install itself, and then recognize all these .avi files and whatnot..not a really hard solution, just not something anyone has produced yet.
Well, if access to the Hypervisor will every be available, you'll be able to actually watch an HD file through Linux, as there are already many apps that flawlessly play 720p,1080i and 1080p without conversion. I can hardly wait .