That's exactly it! CoreAVC! It is true: before enabling it as a priority decoder, some of my HDs would stutter or the video would lag behind the sound... now I watch Full HD on my Eee PC 900 =) Really, anyone who tells you that HD takes a lot of CPU power, just tell them to try CoreAVC...
Regarding your power supply... I don't know whether 400W is enough for HD3850. Try a PSU calculator on one of the manufacturers' websites (Antec, for example).
HD2400 will do as well.. I'm telling you, it's a matter of codecs =) Though, I must say, it looks like Pentium 4 loses out to any Celeron M even with CoreAVC as a primary decoder - as I said, I watch 1080p on my Eee PC (900 MHz) and it used to stutter on my old Pentium 4 before I added a GeForce 6200 to that. It's a well-known fact, though, that Pentium/Celeron M outperforms Pentium 4, so maybe it has something to do with that.
How much onboard video memory does your rig have? I suggest trying CoreAVC first.