We knew the most recent PS3 2.1 firmware update would bring DivX, but Sony made no guarantees about the just as popular (if not more popular) XviD codec. However, since the update has disseminated to the masses, we've discovered that XviD works, too. That's great news for PS3 owners, but there's just one catch you should know about.
While DivX movies can be played from a DVD or USB storage on the PS3 just fine, for whatever reason, XviD files need to be copied to the PS3 hard drive to play. It's a small technicality, but it's the sort of technicality that will save you 30 minutes of pulling your hair out and a lifetime of regret from losing that 30 minutes. PlayStation 3 XviD Playback Update: It Works, But Not Over the Network [gizmodo]