The HD4670 can decode HD and Blu-ray just fine, my HD 3650 can deocde MPEG-2, HD-DVD, Blu-ray, H.264, VC-1. With my 2.4GHz P4 I can play a 1080p encoded movie with only CPU usage around 30-35%. Mostly all the HD2000/HD3000 ATI series of cards and up can do DXVA hardware acceleration. The only card that doesn't is the 2900XT.
I use a brilliant peice of software called MPC-HC (Media Player Classic - Home Cinema) it has its own DXVA support, you do not need (or want) another codec pack to interfere with the deocding of the HD/SD videos. I don't think that MPC-HC always has to use the current screen resolution to play HD files. My HD 3650 can even decode .MOV HD files (Apple trailers).
There is a tutorial on the web on how to use Nvidia and ATI cards for DXVA acceleration, the author has a smart piece of software that can check the DXVA capabilities of your card. He/she has also listed test files (SD,720p,1080p respectively) in HD that you can use for CPU and GPU testing. Here is the link
nunnally.ahmygoddess.net/watching-h264-videos-using-dxva/
It doesn't only accelerate H.264 and VC-1, .MOV and MPEG2 works too 😉
Theres also PowerDVD 8/9 that has nicer ATI AVIVO decoding support, I haven't tested this though, as I can currently still using MPC-HC for my videos. Good luck freedom07!