The codec support for the Gen 1 is rather broad; post the MEDIAINFO for one of the files in the WDTV HD section of the forum to see if anyone can figure out why it won’t play. My guess is the AUDIO TYPE is not compatible. If it’s Blu-Ray, it’s most likely DTS, and the Gen 1 isn’t licensed for DTS.
My opinion is that they should, at the minimum, support all codecs / containers that were advertised as supported at time of release / sale.
Stuff like the header compression issue in MKVs should be fixed, as header compression was always part of the spec (just rarely implemented).
However, they’re not going to fix anything on EOL products.
The bin seems the only place for the Gen1 now, unless you can spend the time re-encoding media to work around its flaws…
Post up the MediaInfo for some of your non-working files. It might just be a case of remuxing them or converting the audio, which isn’t as time consuming as re-encoding the entire movie.
-edit-
Oh yeah, like Tony says, best to take further conversation to the WD TV HD forum. There are more people there that own Gen1’s that can help. :)