I followed the above instruction and got my Raspberry Pi setup with XMBC. RaspberryPi plays mostly all the video format except the H.263 format due to some licensing cost.
For those wondering about the USB external HDD. Yes, I can play files from my 1TB (NTFS) drive to Rapberry Pi ;).
More details about the Raspbmc go here: http://www.raspbmc.com/wiki/user/