In order for the WD TV Live play an ISO file, it needs to have the video codec MPEG1/2, the AVCHD uses the codec MPEG-4 AVC (H.264), so, officially is not supported.
But this player have give me several surprises, including playing files “not supported”.
x264 is an H.264 encoder, so it should work (assuming the ISO’s file structure is compatibile with the WD TV. Some authoring utilities generate ISO file structures that are not readable by the WD TV.)