I've been using PSM really successfully for about a year, then recently I started having problems. I was happily watching quite high-bitrate MP4s and MKVs, with 5ch audio, until a couple of weeks ago.
My problem now is that when I am transcoding a video, even ones I have done before, the file plays for a minute or two then freezes, skips a few minutes, plays for a few seconds (maybe, if it does sometimes it will skip a few minutes more) then throws an "Unplayable content" error on the xbox. This happens on a variety of files, even ones that are nothing special (e.g. medium bitrate mp4 with 2ch audio that played fine a month ago). Streaming content that is native to the xbox is totally fine, absolutely no problem at all.
I think I was using v1.72 fine, and then I upgraded to v1.82. I'm not sure if I upgraded to try to solve this new problem, or if it occurred first after I upgraded. I have fiddled with the settings, completely uninstalled, and tried previous versions (1.70, 1.72, 1.80 and 1.82) but it's still the same. It occurs with both ffmpeg and Mencoder. I've comfortably used vqscale=2 vqmin=3 in the past, but even changing the quality down to 'low-end' settings, offers no improvement. My buffer is 400MB, usually it gets a little less than half full before the skip/crash. The log just says "stop playing event". I am currently running v1.72.
I wondered if something was happening with the multi-threading, maybe if it's transcoding chunks into the buffer it's stringing them together in the wrong order (?), so I unchecked the "multiple CPU cores" on the Mencoder options, and it actually played for a little longer (maybe a minute longer) before it threw "unplayable". As I'm writing this, I realise that I haven't tried changing the "maximum cores" setting on the main options page, but I'm currently streaming an avi so that test will have to wait.
I have upgraded my version of java since the problem started. The only other thing that's changed is I think the xbox got a software update recently, but I'm not sure if this problem started before or after that, because for a while I was pretty much only watching avi files that didn't need any transcoding. I know that I've been trying to search for answers for a few weeks, and even though I can't find any every so often I just hope that if I fiddle with the settings or re-install, maybe it'll work this time. I'm running Windows 7 with a core i3 and 2GB RAM.
Any thoughts would be appreciated. Please take in to consideration that streaming high-quality videos is fine, no skipping related to bandwidth, this is ONLY when transcoding, and EVEN WHEN the quality is set appallingly low.