It looks in your movies, music and pictures folders for the respective types of media. If you have, for example, movies stored on an external harddrive, you can create and alias of that folder and put it in your Movies folder to make front row navigate to it. (Create an alias by secondary clicking on the folder and choosing "Make Alias".)
I have plenty of .avi files that work fine in Front Row. I suspect, however, that .wmv files won't work since iTunes has to convert them to .m4a before it will play them.