Finally got it working on the 360 without streaming! Here's the deal:
In addition to FAT32 drives, the 360 also accepts HFS formatted drives (ipod, etc.). Since I'm a PC user, I don't have any convenient HFS formatted drives lying around. So, I got myself a copy of MacDrive 7 and used it to format a 160gb WD Passport into HFS+. Drag and drop, hook it to the 360 with a USB cable and voila! A perfectly readable drive with a perfectly renderable HD video file on it!
Fast forward/rewind works great with no crashing, though the video does lag behind the actual point in the film you are when doing either. Sound stays perfectly synced throughout. Overall, great performance!
The PS3 continues to have its issues, though. The drive isn't recognized at all (in addition to the fact that the PS3 can't play Windows Media 9.1 audio). Oh well...
Thanks Wookie Groomer for all the hard work! I'm getting the rest of the trilogy as time permits!