Jim - I will check server CPU and let you know
Bob - The codecs are XVID and AC3 also XVID and MP3 (2 channel)
When you ask am I using the PS3 Template - I did check the PS3 compatibility box as outlined in my first post. Is that what you are referring to?
The template is different but setting the PS3 compat checkbox if you changed nothing else should be ok.
The convert when necessary option with the PS3 option enabled will play avi containers with mjpeg, dx50 and xvid codecs without conversion.
You could try copying one of the files to your PC and import it into MC and see if that works (having it on the PC will cut the bandwidth used in half and eliminate any possible issues with the media hub.
You can also check while playing the triangle->info selection on the PS3 will display info about the current playing file (a good way to find out if it's transcoding).