[grantd]

I've noticed that the image quality on my WDTV live looks much sharper and more vibrant than the onboard radeon hd4200 on my motherboard. The onboard graphics are capable enough of playing the video smoothly but the image quality is just not that great. I noticed that the my dad's i5 integrated intel 2000 graphics look about on par with the wdtv, from what I could tell anyway.

My results are similar with both SD and HD content.

So to the root of the question what is to blame for the unimpressive video quality? What specs would I be looking for if I were to purchase a discrete card?

[T800]

Could it be the colorspace setting?
If it was set wrong the video can either look washed out or too dark.

[bluray]

I've noticed that the image quality on my WDTV live looks much sharper and more vibrant than the onboard radeon hd4200 on my motherboard. The onboard graphics are capable enough of playing the video smoothly but the image quality is just not that great. I noticed that the my dad's i5 integrated intel 2000 graphics look about on par with the wdtv, from what I could tell anyway.

My results are similar with both SD and HD content.

So to the root of the question what is to blame for the unimpressive video quality? What specs would I be looking for if I were to purchase a discrete card?

The two major components for better playback and picture quality are GPU and media player (MPC-HC, XBMC, TMT5, PDVD11, etc).

Did you update the HD4200 driver from here (Graphics Drivers & Software)? You can try to disable everything in CCC, and try to playback your 1080P file using the MPC-HC. You might not need to get a discrete GPU. If you still want to upgrade a GPU anyway, I'm recommending one of these passive (AMD HD6450 or HD6570).