Don't bother using the Xbox 360 as a DVD player (note: that's regular DVD, not HD DVD) since, according to Extreme Tech, it's absolutely terrible. ET went to extreme measures to test the performance of the 360's DVD player, comparing it with a Denon DVD-3910. Out of a possible 130 points, the Xbox 360 walked away with only 20. So what's up?
One of the Xbox 360's biggest failures was its handling of jaggies, if it handled them at all. Just look at 'em! As the pictures suggest, the Xbox 360's DVD output looks like a low-res Nintendo 64 game in comparison to the Denon picture. It even managed to make the Stars and Stripes look blurry. And here I thought Microsoft was an American company.
The 360 also had some major problem with interlacing, with artifacts marring what should be much better picture. Though there's still no way to make Monty Python funny, no matter how high-res or sharp the picture is.
There is some good news, though. The Xbox 360's DVD playback can be saved with software updates. It's just up to Microsoft to fix it or not.
Xbox 360's Seriously Flawed DVD Playback[Extreme Tech]