Mark: Well come on then .. what application ?!?! :-)
Connect360, it's been mentioned in this thread i think. But there's other apps that achieve the same functionality as well. It's easily done.
If you've got a Windows Media Center, and you configure the Xbox as an Extender, you can even watch TV on the Xbox, and watch videos streaming off the Media Center. If the video isn't in a compatible format just install Transcode360 and then you can play basically ANY video format on the 360 as the Media Center transcodes it in realtime. You can also watch recorded TV on it, all while someone else uses the Media Center in another room.
The possibilities with Xbox are really great, I rate it highly over the PS3