I use a converter if i want to show anything on the PS3 or the 360. WMV plays off my external HDD on the 360 and MP4 on the PS3....all my anime i want to watch can play on the DVD/AVI player.
Actually my Zune has INvasion and Transformers on it to watch on the planeride to California....better than taking out a laptop. That is in wmv format too....the movie maker 2 works well to convert any codec files.
FYI as far as media space goes noawdays....external HDD's are kinda mandatory if you have tons of video.