I've bought and modded two xbox's. One for me and one for one of my friends. I bought all my modchips from
MrModchips The Number 1 Name In Console Modifications
I used the Xecuter 2.6 CE mod chip and the Solderless adapter. The adapter depends on which 'era' of xbox you have (i.e. the motherboards change inside)
I store all my downloaded tv shows/films on a hard disk on my main pc. I put a 120gb hard disk in the xbox to save games onto.
The divx playback is *flawless*
The DVD playback is *flawless* (since the latest version of XBMC!)
This is the thing to get to watch divx movies on your tv over your network. It is PRECISELY why I got it. However, I started downloading xbox games from newsgroups and that's a pretty great bonus too.
All in all I paid probably 120 quid for everything (mod chip, xbox, hard disk, remote control, new controller) and it was worth every single penny. My housemates love it.