Microsoft have launched a fix it for me blog, where knoweldge base articles have fix it for me buttons on it that automate the fix in the KB ariticle. While I was readying through the recent posted list I saw one for XP Media Center and 360 connectivity issues:

Install Xbox 360 extender for Windows Fix it Live!

Error message when you try to install a program for the Xbox 360 Media Center Extender in Windows XP Media Center Edition 2005 with Service Pack 3: “There is a problem with the installation of Windows XP Media Center Edition 2005”

This issue occurs because of a missing registry entry. The program for Xbox 360 Media Center Extender determines whether this registry entry exists at the time of installation. The program is not installed if the registry entry is missing.
Note If you have installed Update Rollup 2 for Windows XP Media Center Edition 2005 (update 900325) and if you have not installed Windows XP SP3, you do not receive this error message. Update Rollup 2 for Windows XP Media Center Edition 2005 adds the registry entry that is required. Therefore, in this scenario, the program for Xbox 360 Media Center Extender is installed correctly.

To resolve this issue, you must make sure that the required registry entry is added to the computer that is running Windows XP Media Center Edition. To do this, use one of the following methods.

Method 1: Install update 895961
  1. Install the update that is described in Microsoft Knowledge Base article 895961.
    For more information, click the following article number to view the article in the Microsoft Knowledge Base:

    895961 (http://support.microsoft.com/kb/895961/ ) The Windows Media Center Extender service cannot create the sub-desktop session on a Windows XP Media Center Edition 2005-based computer

  2. Install the program for Xbox 360 Media Center Extender.

 

Method 2: Remove Windows XP SP3 temporarily
  1. Uninstall Windows XP SP3. To do this follow these steps:
    1. Click Start, and then click Run.
    2. Copy and then paste (or type) the following command in the Open box, and then press ENTER:

      appwiz.cpl

    3. In the Currently installed programs list, click Windows XP SP3, and then click Remove.
    4. Follow the prompts to finish uninstalling Windows XP SP3.
  2. Restart the computer.
  3. Install the program for Xbox 360 Media Center Extender.
  4. Reinstall Windows XP SP3.
Method 3: Automatically or manually add the registry entry

To have us fix this problem for you, go to the “Fix it for me” section. If you would rather fix this problem yourself, go to the “Let me fix it myself” section.

Fix it for me

To fix this problem automatically, click the Fix this problem link. Then click Run in the File Download dialog box, and follow the steps in this wizard.

Fix it
Fix this problem

Note This wizard is temporarily in English only. However, the automatic fix also works for other language versions of Windows

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