Both nVidia and ATi tout “hardware decoding” support in their graphics cards for various video formats (including DVD and h264).
Both these vendors have working implementations, nVidia with PureVideo and ATi with AVIVO, however with one major drawback: you have to buy third party software.
What I don’t understand is why at this time neither of these vendors can provide a simple DirectShow implementation to support hardware decoding in a software agnostic manner. Instead you have to buy specific software that includes the necessary decoding libraries (as I recall the choice is Nero or Cyberlink).
While I am greatly disappointed with the limitations on these graphics cards, at least there is an alternative choice – CCCP provides a suite of free DirectShow filters that can decode most (if not all) video and audio codecs you can think to throw at it.