I'm using it as my primary DVD player. Well, not Xbox Media Player but the Xbox in general. The advanced AV pack does have optical out, I dont think it has coax, though.

XBMP has come really far, though. It does VCD, SVCD, DIVX, XVID, AVI, MP3, OGG and tons of other formats and the output is usually flawless. I tossed a 120GB drive into mine and have been ripping my DVDs to 1GB DIVX files and putting them on the hard drive. Nothing like having 70-80 movies to chose from without having to touch a disc.

I forgot to mention it also does Shoutcast, Photo album support, TV showguide listings and more.