Step 2: Windows Media Encoder - New Session Wizard
Start Windows Media Encoder (WME). You will be asked to start a new session - select the "Convert a file" option and click "OK".
The first step of the "New Session Wizard" asks you to load in your input file, and also to specify the location/filename of the output file. Load in your DivX/XviD file here. Press "Next" to continue. WME will now analyze your file, and this could make it look like WME has hanged, but it's really working in the background.
The next step asks you to select an encoding profile. Select the "Windows Media hardware profiles", as this profile will be the one that is most compatible with the Xbox 360. We will get a chance to further tweak the encoder/profile settings later on.
This step asks you to select the encoding options. You can leave the default option as it is, since we will actually create a custom profile later on and not use any of the pre-created ones.
The next step allows you to tag the output WMV file with text information. Do what you want to do here.
We are at the end of the wizard. Deselect the "Begin converting when I click Finish" option, since we still need to configure the encoder settings. Click "Finish" to close the wizard. WME will now again do a bit of work.