Hi uniqueme,
Okay what the dealer means is
softmod -
he is going to "softmod" which means no mod-chip will be installed. no soldering.
he is going to flash update the DVD rom firmware. to 1.61 or even lower version.
(bear in mind this will not be xbox live safe) well nothing is anyway, although I am happily using non-stealth 1.41 on BENQ
not all backup games are playable -
he would mean because your box is NTSC (USA) therefore all the local originals/copies u get off Malaysia, which are not region free will not work on your box, + because the dealer have not been updating themselves, (seen this all the time), their firmware update, is not able to play WAVE 4 and above (new games like Tekken 6)
Brother Qns 1 -
RMVB - no
AVI - yes (maybe even need the new updates)
WMV - yes
i think XBMC is for XBOX1 not xbox 360 (i may be wrong)
the XBMC will not override the "softmod" as the dealer only flash the drive, not the motherboard
My solution, I installed TVersity on PC and stream to my xbox 360, this solve my RMVB and other formats which XBOX does not support.
Brother Qns 2 -
you local machine can play all the backup sold in malaysia
you oversea machine can only play some backup sold in malaysia
all this with the latest ixtreme firmware upgrade on the xbox DVD drive.
if you flash it with non-stealth firmware, you do not need to upgrade in the future.
Brother Qns 3 -
you can still risk going online after the soft mod
again, XBMC if there is a xbox360 version, it will not over write the "softmod"
maybe you should check your xbox and see it's exploitable for the XBReboot
then you can run homebrews and games off the USB HDD, then you will not have an issues with games region locks, because you have to patch them anyway.
Brother Qns 4 -
if you are not going online, you best mod is XBReboot (if you XBOX 360 dashboard version is below 8955)
run games off HDD, still can't play RMVB, run MAME and SNES stuff, no problem with region lock games, the list goes on.
ask around your neighbourhood, i am pretty sure there are some guys who is handy with the soldering iron and xbox 360 hacks who can help. Asian Modders are a ripped off, and always out dated. (Always one method hack for life, i mean they are always lacking behind the "scene")
I hope my reply answers most of your questions and doubts. I would love to take a look at your xbox, but i am not in your country. ;-)