Xbox 360 Hard Drive DRM Issues

The Xbox 360 can stream music and photos from a networked Windows XP machine and video/TV from a Windows Media Center PC. You can also get a hard drive for the Xbox 360 and store music and video on it for playback. But some people like Gamespot are reporting that you have to rip your CD’s to the hard drive and any MP3’s loaded onto the hard drive won’t play:

Get used to ripping tracks from audio CDs because that's the only way we could get music onto the 360's HDD. The console could recognize and play MP3 songs from USB devices like memory sticks and portable media players, but we couldn't transfer songs over to the HDD. Similarly, the system could play songs from a data CD that contained MP3s, but we couldn't transfer the music directly to the system's HDD. The 360 can stream music from USB devices and data CDs, but it won't let you copy any songs from those sources.

I’m sure this is some sort of DRM content protection but what’s the point of the hard drive if you have to rip everything to it? Has anyone tried loading video onto the hard drive – does that work?