You might find that the H.264 stream is being decoded by the CPU and not the GPU on the card. According to Wikipedia,
http://en.wikipedia.org/wiki/Nvidia_PureVideo, MCE in Windows 7 will automatically use nVidia's GPU, I found this not to be the case with my nvidia card, I downloaded nVidia diagnostics and found my GPU utilisation at 0%, I downloaded a warez version of the nVidia Pure codec and this went to 100% with a reduction in CPU Utilisation. This was short lived as I updated my driver and broke it. It was something I did for testing to prove a point, as My MCE box runs headless and is used with extenders, I haven't done anything about it. My Laptop with the Radeon 1600 doesn't have any problem playing recordings in 1080i from a share on my main MCE box.
I am considering going down the Radeon Path for My MCE box due to the issue with nVidia not waking up from s3 sleep.