it clearly states though on the gigabyte site that it will support 1080p hd output through the hdmi output??
It will - what it won't do is accelerate the decoding of some types of 1080i/p VC1 and H264 video by using the assistance of the onboard GPU - the CPU will have to do most or all of the decoding!
That said, the boards sporting the onboard ATI HD GPUs will accelerate some types of 1080i/p VC1 and H264 video, but they won't accelerate others.
Basically the encode being played back has to conform to certain profiles to be accelerated - if it doesn't, it'll either be only partly accelerated, leaving the bulk of the heavy crunching to the CPU, or else won't be accelerated at all, leaving the CPU to do all the the work!
And that can be a problem - if you select such a board and pair it up with a lower end AMD chip, everything will be fine for some types of video, but it will
struggle with other types.
Basically if your video conforms to Bluray/HDDVD encoding specs, you should be OK for acceleration - however certainly H264 has some more advanced encoding options that are not supported on Bluray/HDDVD.
For 720p it's not that big an issue, as just about any Core2Duo based chip will do the job without assistance from a GPU, and most of the AMD X2 chips will be fine too.
However, 1080i/p is another matter.
I did some experimenting with this on a desktop PC running an E2180 ( overclocked to 2.67GHz), XPsp3 and 2GB RAM, with an ATI HD2400PRO video card.
I demuxed the 1080p H264 video from the Spiderman3 Bluray, and played back the opening few minutes using Media Player Classic HC, Haali Media Splitter and CoreAVC 1.6 (which doesn't support acceleration).
Using Overlay Renderer
Core0 MIN 64% AVE 80% MAX 92%
Core1 MIN 78% AVE 88% MAX 100%
Using Haali's renderer
Core0 MIN 72% AVE 82% MAX 94%
Core1 MIN 90% AVE 95% MAX 100%
Although neither renderer appears to give any obvious frame dropping/stuttering, the CPU is running pretty close to flat out!
Haali's renderer appears to add a fair overhead (and that's similar with VMR9 and EVR too)
Switching from CoreAVC to the built in MPC video decoder (which does support acceleration)
Using Overlay Renderer
Core0 MIN 0% AVE 3% MAX 6%
Core1 MIN 5% AVE 11% MAX 40%
Using Haali's renderer (MPC states DXVA not in use - stuttering also quite evident)
Core0 MIN 10% AVE 18% MAX 40%
Core1 MIN 82% AVE 90% MAX 100%
Obviously video acceleration can have a big effect (if you can get it working properly), but the result with the MPC video decoder and Haali's renderer just goes to show that some config combinations appear to just not work very well (at least on this PC)
Bottom line
If you are going to go for a non-accelerated setup using just the CPU to do the decoding, I wouldn't consider anything less than a 2.66GHz Core2 CPU.
If you plan on adding a video card which supports full HD acceleration, then for the correct types of video encodes, it appears a very lowly CPU (by today's standards) will suffice - you'd just have accept that you couldn't play HD video which is non compliant with the card's acceleration requirements.