I was using an ATI Radeon 9200 on my system and it worked fine with MCE 2004 as well as MCE 2005. Then I added an HDTV card. With HDTV sources, most channels had the video lagging behind the audio (sync problem) and video data was being dropped in order to keep the video moving (jerkiness).
I have since upgraded to a Nvidia FX5700 and it is smooth for both audio and video on analog as well as HDTV channels.
Video cards do make a difference! I believe that Microsoft is dropping support for the lesser video cards in order to ensure that all MCE 2005 systems are capable of viewing HDTV.
1: Dimension 9200 - W7 Ult x64, 2.4GHz Q6600 Core2Quad, 4GB RAM, 1TB, 750GB, 500GB USB, Nvidia 210, PVR-150, HDTV Wonder, Vbox 3560, X360, DMA2100
2: HP m376n - MCE 2005, 2.6 P4 w/HT, 1GB RAM, 250GB, 400GB USB HD, Nvidia 6200, Emuzed MAUI, X360