Khaos
Thanks for the compliments.
To answer the playback quality question. The rule is quite simple. Playback quality is going to only be as good as the source. For example if you compress a 2 hour movie down to 10 MB the quality is going to be poor regardless of using a digital flat panel, SVGA, SVIDEO to NTSC or SVGA out to HDTV.
Since a computer monitor can at least handle 1024x768 that just falls a tiny bit short of HDTV quality. (HDTV is moving towards the 1080 standard instead of 720). Therefore if it looks bad on your computer monitor it may look teh same or a tiny bit worse on an HD monitor.
On a SVIDEO out to standard NTSC TV it may be even worse.
I took a 2 hour DVD quality video file and compressed it down to approximately 1 GB using DIVX encoding. I work in a TV station so I have 2 hour video files laying all over the place.

I my personal opinion I would say that the quality was 85-90% that of a DVD standalone player. In other words...pretty darn good. A bit higher than SVHS.
This was to a $250 27" JVC cheapo TV.
When running the DVD movie off the DVD Rom the image was clear and crisp but the saturation was a little rich. This varies from DVD software to software. Media player was the most versatile but the worst for saturation. In my personal opinion I'd say the quality was 90% +/- 2 % of DVD standalone player.
In layperson's words...would I say the game content and DVD content is really acceptable? Yes. It isn't AS good as a standalone player but it is really quite good. If I had a better TV it MAY improve. If I had HD...it would be even better as I would be using the SVGA connection instead of converting to SVIDEO.
And there is no way to improve desktop image quality on any STANDARD tv. That's just the way it is unless you go 1080i HD.
But man o man. Gaming in a high end home theatre set up sure wakes up the neighbors and it's kinda fun sitting there on the couch with a wireless joystick. "look ma...no strings!"