So Im a little behind the times, I must admit I have been using my xbox 360 for all xvid playback but since i moved the ps3 to another room i wanted to play a movie.
The catch is that the file has to be on a usb drive. If you do not put the file in a folder called VIDEO you will not see the files. If you are like me you clicked on the video tab from the dashboard and then went to usb device (usb flash drive) and hit your X button. unfortunately this will yeld results of ZERO! it says there are no titles!. Do not worry I nearly gave up until i hit the Triangle button and hit Display all. Like magic all my files appeared.
I have also heard to renamed my XVID .avi files to .divx files and they worked. but i havent bothered with that.
Enjoy the tip if you are needing it.