There is a new update available for Extender users on the Xbox 360. It addresses three key issues:

• This update addresses a picture quality issue that occurs when you use Media Center Extender on an Xbox 360 console that has a High-Definition Multimedia Interface (HDMI) connector to the TV for video and a Sony/Philips Digital Interface Format (S/PDIF) connection to the audio device for audio.
• This update addresses an issue in which the Media Center Extender stops responding (hangs) when you play a large non-WMV video over an HTTP session.
• This update provides support for 50Hz output together with better quality for HD models. This feature applies primarily to regions that use the PAL video standard.

More details on what's in the fix can be found by reading KB950125.