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Video playback
The Radeon HD 6310's third-generation UVD video block is easily the Nano's most important element for home-theater applications. So, is it any good? We fired up a collection of high-definition versions of the official Iron Man 2 trailer to find out. Local video playback was done with Windows Media Player, while YouTube content was streamed via Firefox 6.0 with the latest Adobe Flash 10.3 add-on.

  CPU utilization Result
Iron Man 2 H.264 720p 0-10% Perfect
Iron Man 2 H.264 1080p 3-17% Perfect
Iron Man 2 YouTube 1080p windowed 40-76% Smooth
Iron Man 2 YouTube 1080p fullscreen 86-100% Smooth
Iron Man 2 YouTube 1080p fullscreen (replay) 18-63% Smooth

The Nano had no problems playing 720p or 1080p video files encoded with H.264. CPU utilization stayed under 20%, and playback was utterly flawless.

Throwing streaming Flash video into the mix complicates matters. Things went smoothly with windowed playback and video resolutions up to 1080p, although there was a hint of occasional stutter at the highest resolution. Blowing things up to full-screen made the first few seconds of video chug, and CPU utilization was higher on that first full-screen run than with subsequent replays, which smoothed the initial fumbling. 1080p Flash playback was still smooth enough to enjoy a collection of additional videos.

Gaming performance
One of the best things about running a home-theater PC is the wealth of games available for the platform. With a dual-core CPU and an honest-to-goodness 6000-series Radeon GPU under the hood, the Nano has more gaming potential than one might expect from something that's smaller than a Nintendo Wii.

I started with something easy: Frozen Synapse, which is a masterful combination of Counter-Strike and chess. The game isn't too graphically demanding, and it ran smoothly at 1080p resolution with background animations turned off. Those animations don't add much to the game, which hovered between 25 and 33 FPS without.

Next, I tackled Geometry Wars, a personal favorite that's simple yet filled with bursts of visual flair. The Nano didn't break a sweat with this one, staying at 60 FPS when running at 1080p resolution. Only when I hit a shortcut key to take a screenshot did the game hiccup.

Shank is a another favorite of mine, and it's perfectly playable on the Nano. Fraps' frame rate counter showed 18-20 FPS as I slashed my way through droves of stylized enemies at 1080p with full detail. The experience certainly felt smooth from where I was sitting, likely because the cel-shaded side-scroller is more tolerant of lower frame rates than a twitch shooter.

Enough messing around with indie hits. What about a blockbuster title like Portal 2? The game fared better than I expected, running at 18-30 FPS with a mix of high and medium detail levels at 1280x720. Particularly complex scenes reliably induced slowdowns, but the game remained playable despite the occasional hitching.

Last, but not least, I launched into some Gymkhana hoonage in DiRT 3. The game had to be run with the lowest detail settings at 1280x720 to get smooth frame rates, which stuck to the mid-20s through multiple environments. You don't get much in the way of DirectX 11 goodness with that config, but at least it makes DiRT 3 playable. If only it made up for my n00b drifting skills.

About that missing OS
Although our testing has thus far been confined to Windows, I spent a little time sampling the Nano with an operating system that won't add anything to the asking price. The Nano is compatible with Fusion-optimized beta versions of OpenELEC, a Linux distribution designed "from the ground up" to play host to XBMC, which is neatly integrated into the installer. Getting the distro downloaded and running on the Nano (via an old SD card, although it can also be installed to the hard drive) was a surprisingly painless experience that took all of maybe 10 minutes and was no more complicated than flashing a motherboard BIOS.

OpenELEC is nearly as good as the Windows version of XBMC, which I adore, but it's not quite ready for prime time on the Nano. The headphone output doesn't work, for example, and neither does the front-panel IR port. The remote is functional using the IR dongle, though, and I had no problem getting audio piped to my TV over HDMI. I don't imagine it would take too much additional effort to get OpenELEC's kinks ironed out on the Nano, and I hope Zotac invests the resources to ensure that happens.

With hardware-accelerated video playback, a YouTube add-on and other plugins, and that warm, fuzzy feeling that comes along with open-source software, OpenELEC has the ability to allow average folks to transform the Zbox Nano into a fully functioning home-theater PC without dropping a dime on an operating system. If you're going to be accessing content exclusively from networked sources, you don't even need to add a hard drive to the barebones Nano config. The OpenELEC folks really need to get XBMC's full suite of Milkdrop-powered music visualizations working, though.