With some work, sure. How hard it will be to add to XBMC depends on the MediaPortal APIis XBMC going to be suitable to use as a client for the new TV Engine 3.0?
Yes the Xbox 733Mhz CPU has some problems decoding true 720p video (and 1080i is impossible).XBMC would be suitable for TV Engine 3.0 client however only for SD and not HD content.