May have found the answer. It seems that on WHS the Guest account has to be enabled for Xbox360 to log in. The guest account then needs at least Read access. This sounds like it should work but you know what, I can't test it as My XBox has been wrapped up for Christmas...boo hoo. Can anyone here with WHS & Xbox 360 confirm the above. Cheers.
The thing I still find weird is that the files showed up previously in the dash but not in the extender interface.
Finally, Is it true that the Xbox can't play MPG files streamed from WHS?
This FAQ seems to suggest this to be true
Looks like it will only stream Mpeg2 from an MCE box, What a load of MS C--P.
From Windows Home Server to Xbox 360 Dashboard Video Player
WMV(Protected),
WMV(Unprotected),
AVI
From Windows Media Center to Xbox Media Center Extender
WMV(Protected),
WMV(Unprotected),
Mpeg2
From Windows Media Player 11 to Xbox 360 Dashboard Video Player
WMV(Protected),
WMV(Unprotected),
*Mpeg4,
*H.264,
AVI