Although the current generation of ATI drivers do seem to be better (at least pre-July); ATI has historically struggled with driver quality much more than Nvidia.  I say this having done the reverse (moving to Nvidia from ATI) a while back.  

I have an 8600GT card with a X2 4200 and it's flawless (ATSC HD and HD-DVD).  My connection setup is different though, DVI to a 720p set...  Drivers were an issue when I first got the card, but with the latest WHQL drivers (162.22) everything works the way it should, even overscan correction.

Anandtech did a HQV test (http://www.anandtech.com/video/showdoc.aspx?i=3047&p=3) on the latest ATI v Nvidia offering and the Nvidia one comes out on top (not by much) so if you're considering dumping the 7600 you should at least entertain the 8xxx.

Another vote for the 8600 series cards.  I run an 8600GTS on a C2D 6300, 1 GB ram, Asus P5B-Deluxe, and latest Beta drivers 165.xx I think, component output to an older Mitsubishi RPTV in 1080i.  This combo lets me compensate for overscan, and Mpeg-2, BluRay and HD DVD all play perfectly.  In fact, POTC 1+2 play better on my rig than they did on my parents standalone Sony S300 bluray player.

Regarding the Nvidia cards, make sure you go for 85xx or 86xx series.  8800 cards are inferior (they wont do hardware acceleration of H.264).  I run an 8800gts in my desktop machine now, used to be my HTPC card, and the 8600gts absolutely blows it out of the water for HTPC applications.

This is a prime example of consolidation with only two major players left - ATI and nVidia. When you have a duopoly, we all lose. The thing is, nVidia and ATI are not on a rush to fix all the problems. They will take the stance that they no longer support X, Y, Z so you should upgrade, upgrade, and upgrade… Does ATI or nVidia care that you cannot use your video card? Publically, yes. Internally, no. What are you going to do? Go to somewhere else? Good luck.
Of the 5 systems I have in my house, only 1, yes, one, machine that gives me 100% video playback, gaming, solitaire without any weird artifact. That single machine is my Toshiba laptop with an 11.1” in screen. Definitely a HD experience when there’s about 5 people squinting to watch a movie.
I don’t buy the excuse that they didn’t have enough time to develop a driver or they were not given enough warning. Vista has been out over 10 months for corporate users. IF I told my boss, I’ll have that software package next year, I can tell you, I’ll be on the sidewalk before you can describe the various artifacts you are seeing on your screen.

If your system uses an "old" AGP card, I'm not certain there are any solutions for playing HD content in Vista.

Our HTPC has a few month old, very expensive Saphire X1950Pro 512MB AGP video card.  ATI told me (at the time - March, 2007) that this was going to be the be all and end all of video cards for AGP systems and that it was Vista Logo'd plus had excellent DXVA (hardware acceleration) for all video formats.

So, I plunked down my $$ and picked one up.  At first I installed it in my MCE2005 system and was blown away at the extremely good HD playback.  Every single thing I threw at it played flawlessly and that included wmv hd (VC-1, WM9), mpeg-2, mpeg-4 (h.264), etc.  To top it off, when playing HD content, the CPU was almost idling along typically around 30% utilization (1080p) with lots of power left for video processing, commercial scanning, etc.

Unfortunately I then "upgraded" the HTPC to Vista.  So far, after months of open support calls with ATI, not once has our HTPC been able to play back any HD content.  Whenever we try, the CPU pegs itself at 100% and the video stutters and looses audio sync.  Talking with others on the web I have not yet found a single X1950Pro AGP owner able to play HD video either (but many others state it doesn't work on their system either).

So, for the past 6 months, every time we want to watch any HD content we have to boot into MCE2005.

I'm not exactly impressed considering that this is a Vista Logo'd card that is certified by Microsoft for DXVA 2.0 support in Vista and cost over $400.  To top it off, now ATI has released X2400HD and X2600HD cards that might actually perform hardware acceleration in Vista and they cost a small fraction of what I paid.

It may be that the X2600HD is the card to get these days, but until I see it working or at least hear from many that it works flawlessly, I'll remain very sceptical of claims from both nVidia and ATI regarding DXVA performance.

BTW, my last nVidia card purchased for our HTPC was a 6800 AGP (for over $600).  Most of you know when it first came to market, it too was advertized as having the best DXVA support out there.  nVidia was unable to ever get it working and over a year after I purchased it they dropped DXVA support for it.

GSoD, we're in the same boat.  The only computer, out of 6, in our house that can play HD content smoothly (other than the HTPC running MCE2005) is our Laptop running a Dual Core 1.66MHz Intel processor and Intel graphics.