Well, I can tell you that I was successful in getting 1080p content to play back only when I was running Vista Home Premium with an nvidia video card installed. I was using a Dolphin movie from the Windows HD website for the test, so I can't guarantee that it was encoded in H.264 or not. You're free to check on your own, though!
The audio is reasonable. I only had it hooked up the headphones. As long as the CPU wasn't overly taxed (for example, with Bioshock, where the audio skipped massively), the audio was fine. I'm not sure how it would sound hooked up to a real stereo system, though.
Your ideas intrigue me; I would like to purchase stock in your company.