I was planning to use the 360 as a media center extender too, but it can't stream DVD's natively. I ripped all my DVD's to Windows Home Server, and if I want to play it I'd need to install MyMovies (a pluging for movie libraries in Media Center) and Transcode360,
which would transcode the ripped DVD's on the fly to something the Media Center Extender can play. I've tried mymovies, and found it very cumbersome, and Transcode360 apparently isn't too stable.
Eventually, I just gave up and hooked the media center pc right up to my TV. Vista's Media Center has a nice DVD Library feature, if you tweak a registry setting, and that does everything I want. And I can still stream my DVD's from WHS.
Also, a separate media center pc took some of the load off of my main pc. It's more expensive though. If the 360 was able to stream DVD's natively, it would've been great, but now it's just too much of a hassle.