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I'm currently very tempted to pick up and Apple TV to run XBMC on.

I'm not worried about 1080p - my TV only does 720p anyway. But I would like to make sure that it can run AVIs and mov files at 720p without problems.

Can it manage this?

Cheers!

Andy
Some h264 stuff at 720p will be too much for appletv. Some h264 stuff at 720p will be fine on appletv.

Any other mpeg based codec will be fine.

The typical "I downloaded this mkv file from the internet" *may* be a no go - usually they're encoded to save space, which means decoding will take more CPU.

Unfortunately, the answer is: It depends.

Cheers,
Jonathan
If the h264 files were rencoded to HD MPEG2 files would the ATV be able to play them then?
Maybe.

A media file is more than it's file format. Bitrate, framerate, audio, etc. all play a part in whether or not it will play smoothly on an Apple TV. So you can't really say ''mkv's will work fine" or "MPEG 2 files will work fine". It all depends on the actual specs of the video file.

Also, stuff you play directly through the Apple TV can be of a higher quality as you have access to the Apple TV's GPU. Stuff you run through XBMC only uses the processor to play the video and has no access to the GPU.
@appx 3 Mbps ATV chokes on 720p h.264. Itl run but not at full speed, and probably get out of sync. Most downloaded files will not play but if you dont mind converting or ripping everything from scratch.
As I understand it Apple have some proprietary software to allow the ATV to play hires, but its not available to anyone else.

That being said apples HIRES offerings simply are not as good as any MKV I have played so not sure what is up there.
If you are going to rip or re-encode the video anyway, you might as well do it in an iTunes compatible format and let AppleTV play it in it's own native o/s. That has no trouble with 720p. Personally, I have a C2D/2.0 MacBook connected to my main TV for HD videos. I use my AppleTV in my Kitchen mostly for the YouTube subscriptions and Podcasts. I launch XBMC on it only to play SD content.