I think this is possible as long as you can get the file on the CF card. But why do that when you can just stream if from your hard drive directly?
Mplay is the best application for doing this. You'll basically get everything (including Dolby Digital) that you would from watching it direct from the DVD itselft except for menu navigation but hopefully this will be resolved soon. It requires some action on Roku's side though so the Mplay developers are waiting on them for this.
M1000 wired running WMC and Rhapsody servers
M1001 wireless running WMC and Rhapsody servers