Some AVI Video files not playing

Have you downloaded the Optional Media pack to play AVI file?

Some files can not be played on the 360 even if they are in AVI format because of the encoding used on them.

AVI covers a Broad spectrum of codecs'.

You can use a program called Gspot to find out what codec is being used for that movie file.

What are the details of Xbox 360 Audio Video Interleaved (AVI) support?

Here are Xbox 360 AVI support details:

• File extensions: .avi, .divx
• Containers: AVI
• Video profiles: MPEG-4 Part 2, Simple and Advanced Simple Profile
• Video bit rate: 5 megabits per second (Mbps) with resolutions of 1280 x 720 at 30 frames per second (fps)
  
• Audio profiles: Dolby Digital 2 channel and 5.1 channel, MP3
• Audio max bit rate: No restrictions
  

As far as I know the Xbox 360 will not play Xvid videos in the .Xvid container format. Changing the container to .AVI may allow playback. If not, you will need to convert your video to something else. Xbox 360 does not support divx files that are 1080p.
Also, I don't believe it will play divx or xvid files with audio in AAC format.

Blu Rays are .mkv format.

I think what you really mean is can it play .avi video files you have downloaded.

Well

Videos are in .avi and .mkv but i mostly tried .avi files. As about music its .mp3 or .mp4. It is the first time im trying to stream anything from XBOX360 WMC.

Hiya, bit long winded, but hope this helps!:

Supported File Types

The Xbox 360 supports AVI, WMV, MPEG-4 Part 2, H.264 and QuickTime movie formats. The file extensions included are as follows: .avi, .divx, .wmv, .mp4, .m4v, .mp4v, and .mov.

Video Playback

For video files with the WMV container, playback occurs at 15 Mbps (Mega-Bytes Per Second) with a resolution of 1920 x 1080. Files with the H.264 container have the same resolution, but are played back at 10 Mbps. For AVI and MPEG-4 Part 2 video files, playback
is 5 Mbps at 1280 x 720 resolution.

Audio Playback

The Xbox 360 supports WMA 7-9 and Lossless audio profiles for WMV video formats. Dolby Digital and MP3 profiles are supported in AVI formats. For MPEG-4 Part 2 and H.264 encoded videos, the console supports only two-channel AAC audio encoding.

Streaming Video

With Zune software, the Xbox 360 can stream unprotected AVI, MPEG-4 Part 2, H.264, and WMV video formats. Through Windows Media Player, protected and unprotected WMV videos can be streamed.

Streaming Tips

Download a third-party video codec package to expand the amount of video formats you can stream using the Windows Media Player. For better playback, convert video files into the more Mircosoft user-friendly WMV format using a third-party video conversion
program.

Source(s):

Video Playback & Audio Streaming FAQ for the Xbox 360