After a long nite of trial and error testing I figured it out.
So, first the bad news. It appears that no matter what you do, the X2VGA2 will not work correctly with the 32WL56 so for me it was a duff purchase. I tried the X2 on my tv and a mates Dell 20" HDTV and it didn't work. Whether its my box or its just so picky I dunno but I'll be selling mine soon.
Anyway, here is the solution. You'll need to have the advanced av hd cable for the xbox. I picked up one from ebay recently for £20 but you can also find them from Liksang dot com. This connects to your xbox a gives you a small box with component video, stereo audio and optical audio outputs.
Next, buy a component to VGA adapter like this (
http://www.tvcables.....ga-hd15-1.html ).
When you have all of these, plug the adapter into the xbox, component into the adapter and vga to the tv. Switch the tv to channel YUV (ie Component) and turn the xbox on. And that's it.
I've tested this with a softmodded xbox using the official M$ dashboard and it gives me the high-def options. Also modded it to boot with XBMC and that worked too.
It was a complete ballache (and frankly I blame myself for not thinking of this method before buying the X2VGA2) but it is worth it for the complete media center experience.
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Points of note, if you haven't got the YUV channel available to you on your tv then you need to contact Toshiba. They will send an engineer to flash the firmware which enables it. Apparently the very first models didn't have this enabled.
Also, if you want to split the VGA port I recommend you get a Kramer VGA splitter like this (
http://www.cyberselect.co.uk/range/443 ). Though I got the 2x VGA splitter off ebay for £17 so you may find a bargain. If you get a cheap one you run the risk of having ghosts on your picture. PS, I using Belkin Pure AV VGA cables to connect all this kit together.
Now I have my xbox plugged into one of the VGA splitter ports using channel YUV on the tv and the 360 plugged into the other using the PC channel (running at 1360 x 768) and everything is sweet.