Yeah, for high resolution DivX or XviD files you do not need anything really special.
However, if you want to watch Blu-Ray or HD-DVD, then you're talking about some serious hardware. I suggest you read the following article from Anandtech about HD Video playback:http://www.anandtech.com/video/showdoc.aspx?i=2886
Basically, the following are recommended:
1. C2D E6600 or Athlon X2 equivalent.
2. An nVidia video card since they are better at offloading decoding better than ATI cards.
The article was written last year so who knows how well the X2900 will be able to offload decoding from the CPU.
Looks like my next HTPC will be as powerful as my primary PC.