It would be more appropriate to put that chip on a graphics card or separate video accelerator card (I remember when these came out for MPEG2 decoding). It's not something which is done as the disk is read, since at that point the stream is encoded.
Nice idea... I'm sure that when HDDVD catches on for the mainstream this sort of thing will appear... probably also have an HDCP compliant HDMI output too, maybe with VGA overlay.
I just upgraded my drive on the Nvidia GeForce 6800-PCIe-x16 with Version 93.7, a ForceWare Graphic Dirver release in November 2006. It includes hardware acceleration of H.264:
http://www.nvidia.com/object/winxpmce_93.71.html
Cyberlink's adviser now has a green circle for graphic Card Driver.
I wonder if this is a version of the mpeg 2/4H264/VC1 decoder that James was referring to in post 16.