Basically, you have two options: bad and worse:
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.