Only had my WD TV Live for a couple of days and so far have found it can handle every file type I have, however I have found issues with VOB files.
First, if multiple VOB’s make up the movie I get a significant pause as it transitions from one to the next. I see this as a major bug as movies won’t play seamlessly.
Second, if menus exist there appears to be no way to navigate through them, e.g. unable to select any of the menu options. The only way of moving into the movie itself is to use the Next button on the remote so I can’t make selections such as select a particular scene. This is a real shortfall in functionality.