I have the exact same issue and it is definetly a flaw of the UPnP software used by the DNS-323 and should be relatively easy to fix.
The xbox does have a limitation on length files names of aprox. 70 chars. However, the UPnP server should respect this. Furthermore, streaming the same exact file(s) from a Windows 7 machine setup as an Xbox Media Extender works perfectly, while they do not work on the DNS-323.
Unfortunately, I bought my DNS-323 for exactly this reason and if it cannot perform this basic task I will have to return it for a product that does. To add to the disapointment browsing files on the XBOX 360 over UPnP and the DNS-323 is extremely slow.
-RomioGT