I have HDTV 42 inch and I use Videora to convert my video files so my x360 can recognize it.

When I play all my original .AVI files on my computer, the quality is great! But when I convert them to WMV (MP4) and play it on my X360 with 42 INCH HDTV, the picture has blocks of pixels popping randomly like the picture has been POORLY stretched

Video Format (Old or New)
Video Size (TV or HDTV) <------ If you turn this on, your converted file will increase to at least 1gig and length time of converting would increase about 2-3hours....
Video Quality (From Basic to Best)
Enhance Quality (On or Off) <------ If you turn this on, your converted file will increase to at least 1gig and length time of converting would increase about 2-3hours....
Audio Quality (From Basic to Best)

These are the features they offer you when you are about to convert your video files.
Obviously if you select the best options, files get bigger and time to convert gets longer..

But the quality is pretty much the same..

Can any of you recommend me a good program that you use? I just want my video files to be less than 1 gig and OK quality is fine, as long as no blocks of pixels popping randomly or poorly stretched picture

If you have the latest dashboard update, you can play DiVX videos, which you're probably watching on your PC already. The videos look bad because you're watching a (usually something like this) 640x272 resolution video on a 42" HDTV, so of course it's not going to look all that great.

Sorry for being a newbie but are .AVI files are considered DiVX videos?

Also, I am not sure if I have the lastest dashboard update but do you think if I just tried to play my DiVX videos the way it is (not converted to WMV yet), the dashboard will prompt me to update it in order to play DiVX videos?