Seems odd, when I was running Vista, my old 360 connected straight away, no downloads were needed. Now back on XP MCE, I did have to download media extender and update XP to rollup pack2.
Are you running a wired or wireless network? I'm running a wired network through my house via a Netgear DG834 router and have had no probs at all. Even my old PS3 (Traded for an Elite) hooked up no trouble, once I enabled file sharing in MediaPlayer!!!