Actually, according to SPCR's review of the new unit (with the old Celeron 215, instead of 220), it does HD video quite well for its price/size.
http://www.silentpcreview.com/article780-page3.html
The only issue is with VC-1 encoded videos. If you can get the CoreAVC codec to sacrifice a bit of image quality for speed, I don't see why you can't build a HD capable media center with this. The only thing holding you back is the 2 channel audio output, but that's something easily fixable with $50 USB 5.1 soundcard.
http://www.silentpcreview.com/article780-page3.html
The only issue is with VC-1 encoded videos. If you can get the CoreAVC codec to sacrifice a bit of image quality for speed, I don't see why you can't build a HD capable media center with this. The only thing holding you back is the 2 channel audio output, but that's something easily fixable with $50 USB 5.1 soundcard.