This is a prospective, multi-center, randomized, placebo-controlled trial in subjects with histological evidence of > 33% hepatic steatosis or nonalcoholic steatohepatitis (NASH) and chronic hepatitis C. Patients who have not been previously treated for hepatitis C (treatment naive) will be enrolled.

Recent evidence suggests that patients with concomitant chronic HCV infection and NASH or significant hepatic steatosis (>33%) respond less well to standard antiviral therapy. As previously noted, up to 10% of patients with chronic HCV infection will have concomitant NASH and an even greater percentage will have associated hepatic steatosis. No prospective studies to date have evaluated the sustained viral response rates to standard antiviral therapy in this group of patients who were previously treated with a medication to eliminate or improve the underlying NASH and/or hepatic steatosis.

Primary Outcome: To determine if decreasing the amount of NASH or hepatic steatosis in overweight (BMI >27 kg/m2) HCV patients results in improved overall SVR to PEGASYS and Copegus.

Secondary Outcome: 1.To determine the amount of steatosis, necroinflammatory activity, and fibrosis change in a group of participants with chronic hepatitis C and NASH or significant steatosis treated with Xenical vs. placebo for 36 weeks. 2. To assess for a difference in insulin resistance, as measured by the QUICKI score, before and after treatment with Xenical or Xenical placebo and diet and exercise.

Inclusion Criteria:

• Participants must be willing to give written informed consent and be able to adhere to dose and visit schedules.

• HCV-Ab or HCV-RNA by PCR Positive for at least 6 months

• Serum positive for HCV-RNA by PCR assay

• Treatment naïve participants who have hepatitis C with genotype 1, 2, 3, or 4

• Body mass index >27

• Liver biopsy within 12 months with a pathology report confirming the histological diagnosis consistent with CHCand NASH or hepatic steatosis of >33%

• Compensated liver disease with minimum hematological, biochemical, and serologic criteria at the Enrollment Visit (WNL = within normal limits):

  • Hemoglobin values of <12 gm/dL for females and <13 gm/dL for males
  • WBC <3,000/ mm3
  • Neutrophil count < 1,500/mm3
  • Platelets <65,000/ mm3
  • Direct bilirubin within 20% of ULN
  • Indirect bilirubin WNL
  • Albumin > 3 gm/dL
  • creatinine < 20% of ULN
  • TSH WNL
  • Alpha fetoprotein value < 100 ng/mL

• Reconfirmation and documentation that sexually active female subjects of childbearing potential are practicing adequate contraception method, or monogamous relationship with a male partner who has had a vasectomy or is using a condom + spermicide) during the treatment period and for six months following the last dose of study medication

• Reconfirmation that sexually active male subjects are practicing two acceptable methods of contraception

Exclusion Criteria:

• Women who are pregnant or breast-feeding

• Males whose female partner is pregnant

• No other Thiazolidinedione after liver biopsy and/or during the entire study

• Hepatitis C of non-genotype 1,2,3 or 4

• Previous anti-viral therapy for treatment of Hepatitis C

• Suspected hypersensitivity to interferon, PEG-interferon, ribavirin, Xenical

• Any other cause for liver disease other than chronic hepatitis C and NASH or steatosis, including but not limited to:

  • Hemochromatosis
  • Alpha-1 antitrypsin deficiency
  • Co-infection with HBV
  • Wilson's disease
  • Autoimmune hepatitis
  • Alcoholic liver disease
  • Drug-related liver disease

• Any condition that would prevent the subject from having a liver biopsy

• Hemoglobinopathies (e.g., Beta Thalassemia)

• Evidence of advanced liver disease

• Patients with organ transplants other than cornea and hair transplant

• Any known preexisting medical condition that could interfere with the subject's participation in and completion of the protocol such as:

  • Preexisting psychiatric condition, especially severe depression, or a history of severe psychiatric disorder, such as major psychoses, suicidal ideation and/or suicidal attempt are excluded
  • CNS trauma or preexisting/active seizure disorders uncontrolled with medication
  • Significant cardiovascular dysfunction within the past 12 months
  • Poorly controlled diabetes mellitus
  • Chronic pulmonary disease with documented pulmonary hypertension
  • Immunologically mediated disease (Crohn's disease, ulcerative colitis), rheumatoid arthritis, idiopathic thrombocytopenia purpura, systemic lupus erythematosus, autoimmune hemolytic anemia, scleroderma, severe psoriasis, clinical cryoglobulinemia with vasculitis

• Any medical condition requiring, or likely to require chronic systemic administration of steroids

• Evidence of an active or suspected cancer or a history of malignancy where the risk of reoccurrence is ≥ 20% within 2 years

• Active clinical gout

• Substance abuse

• Participants not willing to be counseled/abstain from alcohol

• Participants with clinically severe retinal abnormalities

• Any other condition that in the opinion of the investigator would make the patient unsuitable for enrollment, or could interfere with the patient participating in and completing the protocol

• Known positive HIV

• Inability/unwillingness to provide informed consent or abide by the requirements of the study