Don't know about external, though I don't see why not, but yes, I was just playing x-men first class 720p .mkv from my internal HDD, and it worked well.
Image quality is slightly lacking, jagged edges/screen tearing, but it's still a great step forward

Only time it slowed down and crashed for me, is when I was wiggling the thumb sticks around. Are they supposed to do something?
This post has been edited by DARKFiB3R: Aug 29 2011, 11:40 AM