these are the posts that just make me happy.
first off yes! it makes a great dvd player replacement!! do it now.
as for the wife worries, i hear ya. my fiance has gotten the hang of xbmc, although i have been at it for quite some time now, and she loves it. once you get her past the initial "it's different" stage, she'll love the freedom of not having to pick out a dvd to watch, and instead browse for it
i think tivo owners all had the same thing happen,
wife: "ugh what is this tivo thing, its stupid."
** two weeks later **
wife: "get off of my tivo!"
definately make xbmc your default dash. you may find that softmodding your xbox + using msdash for dvd playback is a bit cumbersome at first, i'm in the middle of my first softmod right now for a friend's 1.6. you will want to use the msdash as a dvd player since xbmc does not have dvd menu support. the key to xbmc is making it easy enough for your wife to use (and like), thats my goal at least, when you have done that, you have a pretty sick setup. if you want something easy, pick up a no solder modchip or flash your tsop, tsop flashes are what i prefer personally, its cheap and easy and can be done on the spot without waiting for a chip to be delivered.
hope that helps.. good luck!