Getting this same problem, but only with certain files. When I try to watch them from my other machines, the Xbox plays them fine, when I watch them from the DNS-323, I get this same codec error.
I have refreshed the UPnP server, disabled and re-enabled it, upgraded to the 1.08b firmware and no joy.
I have the Optional Media Update on the XBox.
I thought it might be a corrupted file somewhere on the volume, so I ran a scan on the disk but it came back with no errors.
Any help appreciated.