popatim :
That codec is hardwired into the capture card part of the GPU - kind of why they call it a hardware encoder.
Most programs cant use the hardware encoder which is why you need the codec so apps know how to handle the data stream.
Go back and look at the question. He can't use the HARDWARE ENCODER option despite having one. Not to be rude, but I'm not quite sure what your point is. I think you're suggesting he just use a SOFTWARE DECODER but that's not the point of the video.
The way it works is fairly simple for the HARDWARE encoder and decoder on the NVidia card:
a) Program can use the HARDWARE DECODER first if the original video uses a codec for which the card has a hardware codec such as MPEG2, H.264, and VC-1 (also some restrictions on the version as some newer ones may not be supported).
b) The HARDWARE ENCODER is the last step and works exactly the same way it does for NVidia's Shadowplay since it's the same path. The data is sent into the Hardware Encoder (NVENC) unit on the card instead of being entirely done on the main CPU of the computer (which would be called software encoding).
The quality is quite good as you can see with Shadowplay there's not too much loss so unless you're dealing with really good quality video it makes sense to use this method to save time.
It's the DECODING portion that's the most critical for quality so depending on the quality needs you may want to for example disable decoding but enable encoding. However, video size would be a reason to use a good software encoder as it's possible to get the same quality at a smaller size but that requires a few things such as doing an initial pass to analyze the data which can't be done in real time (why 2-pass is best for quality; it does an initial pass to look for ways to save on overall size, then the second pass is the software encoding based partially on that... such as optimizing for black space which has minimal data).
EXAMPLE:
Let's say he has an MPEG2 (DVD) file and wants to convert it to H.264 which is a common thing to do. If he has both the HARDWARE encoder and decoder options working, then the MPEG2 video is streamed into the MPEG2 decoder, then that video is sent into the H.264 encoder.
Summary:
His card DOES support this using the NVENC hardware encoder though unfortunately I'm not sure what his problem is. I personally use HANDBRAKE since I care about the quality quite a bit as it's for HDTV playback.
I also optimize for space and Handbrake may be the best program for quality at the smallest size. A small learning curve but I've got it now and I find it far less confusing than all the other programs which try to be simple but seem limiting.
I do BATCH files and simply run Handbrake over night and can even tell it to shut off my PC.
As an example of video quality, I converted a 60 minute 1080p video (church sermon) down to about 300MB and it still looked pretty good. (Main settings in Handbrake were: High Profile, MEDIUM speed for video, 2-pass, 1280x720..)
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