The quality your getting from xbmp will depend on 2 things.
1. The connection between your xbox and tv. ie. normal video connectors, s-video or RGB. The quality increasing in that order. If your in the US you may have composite instead of RGB although I haven't looked into it in depth being in the UK myself, perhaps someone in the US could elaborate on the best setup for US people.
2. The quality of the rips.
I know for a fact that you can get extremely high quality output.
I have been downloading tv rips of the 2nd season of Smallville done by a group called Sd-6. Now these are widescreen SVCD rips taken from HDTV. Normally what I would do is play them on my dvd player and use the zoom feature on my 32" widescreen tv in order to have the letterbox picture fit the screen.
However with xbmp it automatically crops the black boarders and resizes it for anamorphic widescreen. So instead of using my tv's zoom mode it plays in true 16:9 anamorphic widescreen. Technically this should result in a slight downgrade in quality due the resizing by xbmp but the end result looks superb. Way better than ANY tv rip I've ever seen. It looks better than some dvd's I've got. It looks much better than when I play it in my dvd player and use zoom.
I've yet to experiment with any divx or xvid dvd rips but technically they should look just as good if not better due to the higher resolution.
As long as the rips themselves are good quality.