Yes it can but it's not that great. It will only recognise certain file types. MP3 will be fine I think you'll be fine with MPEG but AVI files were a big no no when I tried to set this up.
You can either use windows media player to share it across - first have to go on xbox and search for it. If you got media centre it can help too.
If you don't want to use that route you can use this software called Zune.
http://www.zune.net/en-us/software/download/default.htm
Basically you install that on your PC it picks up all the files and then you use it as a media server so that the xbox can access the files. It was pretty simple to setup.
I still use my old xbox that has got the best networking capabilities it will read almost any file.
Any questions let me know good luck.