This story tells us that the ability to PS3 AVI Transcoding on the FLY!. It brings us a list of instruction see inside to look for further information

Got a PC full of AVI's just waiting for the right application to appear that would allow you to play them in all there glory on your living room TV? Looks like with the recent 1.80FW update and a copy of Nero Home or Nero V7.0 you to can be enjoying all your videos today..Updating as we learn more.. Video Proof included.
Thanks to mingeeta from PS3forums and AVFORUMS for the info. Updating as I get more info..
HERE IS SOME UPDATED INFO:

1 - it does work
2 - you need the latest version of nero for it to work
3 - on wired conex there is no lag (some wireless connections seem to be getting lag)
4 - you have to do the nero cout thing to get it to work


Here is some quick instructions:

Turn your PS3 on and login, and leave it on your XMB

Run a file in Nero Showtime to unblock the firewall that pops up and ALLOW.
Run Nero MediaHome
On the left are a set of Icons.

Heres a quick setup:

SHARED DIRECTORIES > Click ADD SHARE and browse to a single shared directory for now, as it takes time to add the details, so dont go adding gazillions of media files for now.

OPTIONS: I left them at default for now, but they are self explanatory. Automatically start media home when pc is switched on is a good one to tick up, but leave it off for now till you get it going.

NETWORK: Click the box for your ethernet card on your PC. Leave port number and network name at default for now

DEVICES: Click UPnP/1.0 line and click ALLOW ACCESS box

TRANSCODING: Leave on auto detect as it will talk to the ps3 and see what it can and cant play and come up with a solutionafter a few seconds.

TV: Set up your tv card here

STATUS: Click this ICON and you will be able to see whats going on

then click START SERVER at the bottom, and you wait a few moments. Go back to PS3 and it should show the Nero Media Home Icon. Browse as normal for your video files.

At first if you have loads of files in your shared directories it can casue the ps3 playback to come back out to the XMB. Just give Media Home some time to update the directory listings, then it will be silky smooth.

Ive tested this n a decent PC for SD avi files only so far, and they work fine. You might have issues if you have an old pc, as the trancoding can take up resources.

some tips:
Only add one or two files max into a folder, as nero can take a while to index large amounts of files. You can also turn off the server and go to TOOLS - NERO SCOUT - INDEXING - FOLDERS and select the folders you want there. Then go back to the INDEXING tab and click INDEX NOW - this may take a while to do, if you have huge mounts of files, so as before just to get it working. When its done go to SHARED DIRECTORIES ICON in nero media home and select SHARE ALL CONTENT INDEXED BY NERO SCOUT

Will Baxter via gameswank.com »