The current version of XBMC does support SMB and works pretty well with it to play most formats. Some codecs get a bit weird and the settings can be tricky to figure out. XBMC does not have dvd menu support, but it is a planned feature. You can play vob files directly over network and it can pickup the logic (ie this vob is the next one and play it automatically) The switch between vob files can be noticed at times though.

XBMC does support 420p , 720p ( i think), and 1080i , DVD/movie playback looked weird to me in 1080i on an hdtv. 480 P looked ok for dvds, but I think the progressive output sony dvd looked much better.

It isnt really tough to update XBMC if you have a dashboard that can do it like avalaunch. IF you dont you just have to go to an IRC channel , get an ftp site then download the binaries. Once you have the binaries you can ftp them over to the xbox.