He was mentioning specifically WMP visualizations for both displays, which is definately possible, and supported with his card.
However, the overlay is not the "way they're supposed to" display media, it is "one" way to display media. Windows supports video playback using several methods, overlay being but one method. VMR rendering is now the "prefered" method and replaces the video renderer and Overlay Mixer methods in most cases (VPE's are an exception) DX7 introduced VMR7 which uses direct draw (like the overlay), and VMR9 uses D3D.
I'm not sure I understand your comment "The drawback is that the former can't use the graphics engine's deinterlacers, scalers and filters - hence, CPU load is massively higher." what are you refering to as "the former"? maybe you could elaborate?