Workaround
In order to play videos on the WDTV Live using the Windows 7 “Play To” feature:
(1) Put the WDTV Live in display mode, by using the remote to view any photo.
(2) Once the photo is open, Windows Media Player can be used to “play” any video in the Library “to” the WD TV Live.
Thus, the selected video can be controlled from a Notebook / Netbook PC and viewed on a TV - w/ both video & audio.
Conclusion
Although WDTV Live currently supports 95% of the Windows 7 “Play to” feature, WD needs to fix the 5% that’s not working ASAP.