I just tried an USB stick and an ancient external USB HDD. USB stick worked on first try, HDD not. I had to reformat it, it was formatted in NTFS and that can't work, but after I persuaded my WinXP to format it in FAT, I played a AVI from it. The only problem seems to be, that you can only play files from the explorer menu, cause my AVI wasn't shown in the movies menu, when I switched to USB.