I have a 150GB USB harddrive formatted as FAT32, no matter what USB port on the 360 I connect it to, the removable media button is greyed out. It work just fine with my PS3, but my PS3 is currently in the shop so now my 360 is my only option. :Argh:
The harddrive contains all avi videos (divx/xvid), and they all work with the PS3. I do have to hit display all on the PS3 because all the videos are in subfolders.