Instructions
Plug the external hard drive's USB cable into a USB slot on the PS3. The PS3's USB slots are on the left side of its front face.
Go to the "Video" column of the PS3's main menu and highlight the external hard drive. It should be listed near the bottom of the column as a "USB Device."
Press "Triangle" and select "Display All" from the menu pane that opens on the right side of the screen. This displays the external hard drive's file system, as it would be seen on a computer. Navigate to the DivX or AVI movie file you want to watch and press "X" to begin playback.