Here are my thoughts:
I do appreciate everybody’s itch to use hardware decoding for MKV playback but so far, the most reliable and flexible way is still through a powerful CPU (a.k.a. dual core CPU or equivalent) with lots of memory and a good software decoder (like The KM Player).
This week, I just upgraded my graphics card to an HD3870 (from 8600GTS, originally 7600GT). Result; nothing significant as far as playback quality of anything MKV in my hard drives. This implies that my previous set-up with the 8600GTS was more than sufficient even for heavy 1080p contents. Since I am a very light PC gamer already, I feel I just wasted money on this upgrade.
However, there is quite a nice reduction in CPU load for playback of original HD DVD through the MS Xbox360 add-on drive. For reference, the 7600GT was borderline 100%, 8600GTS was steady at around 50-70% while the HD3870 manages 20-30% (under Vista and with lots of background processes including Norton Internet Security 2008, and endless torrents).
I’ve been reading about the MPC HC project (Media Player Classic Home Cinema) as very promising in terms of accessing the GPU power (somehow) but I’ve also read some playback/settings/compatibility limitations that experts are still trying to work out when using this player. So at the moment, I’d rather wait it out. But for those using P4 class CPUs or equivalent, it seems that MPC HC is really the best way to go, unless The KM Player can’t handle the content. Converting MKV to VOB using MKV2VOB in order to playback using PowerDVD is another good option assuming the resulting 2-channel audio is acceptable. Once the file is converted to VOB, it becomes a DVD format data hence very light on the CPU and can also take advantage of hardware decoding. Not everyone is comfortable with the demux, conversion, mux sequence though.
Here’s what I keep in my PC for multimedia applications for the time being:
1. Cyberlink PowerDVD 7.0 Ultra for HD DVD, and DVD playback, hardware decoding enabled of course.
2. Daemon Tools as DVD emulator.
3. The KM Player for MKV (VLC Player as back-up) Ver. 1428. Personal favorite video renderer is Halli renderer (subjective).
4. Windows Media Player 11 for AVI (with FFDShow and AC3Filter) and network file sharing with the Xbox360.
5. MKVToolnix for playing around with MKV files.
I try other media players (and there is quite a lot of good options really) out of curiosity and they work quite well, but my needs are fully covered by the above applications already.