i've been using it as my primary media client the last couple days to test it out.
it's totally hit and miss with MP4s. some of my MP4s will play with audio but not video. the Xbox doesnt have these problems, but i have used it to play back some MP4s that are on my Windows Home Server ... since WHS doesnt serve MP4s, but the Klegg can see those shared files fine. anyway, once WHS starts serving MP4s, then there will be no reason to use the Klegg for MP4 playback.
it plays Div3 fine, which the 360 will not. also had some audio stutter with a handful of Div5 files on the 360, but these play fine on the Klegg. that said, the video quality seems to be slightly better on my 360. so i'll only end up using the Klegg for Div3 files, at least until I re-rip those DVDs. for the Div5 files with audio stutter, i'll keep reencoding the audio to play them on the 360.
my MPG files play fine on the Klegg, it can even play the handful of MPG files that failed through MCE extender sessions. since the 360 will not play MPG through UPnP, i'll continue using the Klegg for MPG.
the Klegg is also hit and miss with WMV. most play, although some play with video but not audio. the 360 handles WMV better, so i wont use the Klegg for WMV at all.
it plays HD content fine too (WMV/AVI and 720/1080). it did have problems with some of the WMV content which played without audio. haven't has any problems with HD content on the 360, so i won't use the Klegg for HD.
need to rip some of my test DVDs with complex menus, but the Klegg has been working great with ripped DVDs shared on WHS. it's supposed to handle ISOs too, but i dont have any to test with. also been meaning to see if it can play HD-DVD VOBs. anyway, this feature is probably going to compel me to setup another NAS just for DVD rips and then use a Sony MCE DVD Changer to mass rip my collection to be available on the network.
overall, i prefer the video quality on the 360. the Klegg periodically shows some video artifacts. its also not very user friendly. i'm not sure my parents could figure out how to use it as easily as they figured UPnP on the 360. but the Klegg makes a good enough complement to find a place in my media setup. its good with file formats that the 360 doesnt support, and the ability to play networked DVD rips is compelling.