"I want to set it up so that My 2 xbox360s can see the files on the NAS withought having to have a computer on"
While XBox is not a DLNA compliant device, it should work none the less.
"I think this will work but my question is this: I have a 2tb usb drive that contains all my movies. Will I be able to attach this drive to the NAS and see that folder as well on all the Xboxs and computers that are in the same network as the NAS?"
Yes as long as the unit is formatted to fat 32 or XFS
"As if the USB drive attached to the NAS was just another folder in the NAS?"
It will show as an extra drive, yes.
"One other thing, will I have to reformat the usb drive to FAT in order to work with it once its attached to the NAS or was that only in older Linkstations?"
*See above