I have the same question as you do and would like an answer from someone who has actual experience.
I have no experience as I am waiting for my HDTV to arrive, but I have done research.
First, a DVD ROM typically provides no output external to the PC; if you are to attempt to match the quality, component output is required.
Second, I do not know whether the ATI 8500DV comes with component output. My ATI AIW 9700 did come with component output through the TV out port. I do not think it can actual provide output at the better HDTV equivalent quality levels as the TV out on the card has limited resolution capabilities.
Third, ATI sells an HDTV Component Video adapter that adapts the monitor out signals to provide a variety of HDTV quality signals.
Finally, with respect to this adapter ATI's FAQs state that "DVD playback is supported in 480i and 480p modes due to Macrovision restrictions." As you may know, Macrovision refers to the industry's standards implemented for copy protection purposes for DVDs. This statement implies that the best quality attainable because of these standards for any compliant device will be 480p, therefore implying that the ATI card can provide the same quality output as the best DVD player.
The questions I am left with are:
1) Does this ATI adapter and related software work ? Does it produce the quality it promises ?
2) Does the DVD ROM matter ? Can a low end DVD ROM do the job ?
All the above only addresses the video quality, audio will need to be addressed also...