I have been slowly migrating away from SageTV and as part of that I needed to get VOB/TS folder DVD playback working on my new xbox 360 slim for increased WAF factor. After a lot of searching around and very old guides from WS-kid and hack7mc that were referencing Vista I thought I would share my findings.
1) I installed and configured Shark 007's codec pack via Assassins instructions located in his free guides
2) Download and install VLC
3) Download and install transcode 360
4) In transcode 360 under advanced settings use the VLC wrapper instead of the default Xbox 360 - Mencoder
Possible optional steps (I use media browser)
5) In mediabrowser advanced settings enable transcode 360 but keep all of the formats in the list from assasin's guide
That's it, didn't change anything else and now I have TS_Video folder and .VOB DVD rip playback on my xbox 360 slim in media center. I should mention that this is on Windows 7 Pro 32bit.
Yep, it does a full freakout/disconnect on any attempt to FF or RR, this is a hit play and forget type setup just for the wife on 'secondary' TVs. I told her that if she wanted to watch a movie she should do it on the 126" projection screen in the basement that runs XBMC but for some reason that didn't sit well.
/edit, pretty sure it does pause/play but I will have to double check that.