I didn't like XMBC so didn't really use it
Regarding option 5 in the OP, is there a way of flashing an old XBOX that doesn't involve trying to find a copy of what are now pretty rare games on ebay, etc in order to flash XBMC? Last time I searched I couldn't find one but this was a while back now.
6) Cheap & cheerful... http://www.raspbmc.com/ (albeit it geeky and likely involved, but circumvents some of the cable problems as it has HDMI out, and you shouldnt have to worry about codec problems either).