Of course, I have no problems in playing media on my desktop - I also use VLC, it's perfect for click'n'play and not infesting your system with dangerous codecs (bad configuration=bad system). I've got a long cable to a tv, but I still use htpcs. Unfortunately, some don't have the horsepower for software decoding of h264.
From what I've read (I haven't experimented myself), without a 10bit source the quality difference is non-existant, with the only potential improvements being banding in animated content.
To play in hardware, we need the software to be able to play 10bit
GPUs etc have dedicated decoding engines and tonnes of shaders etc to play with - We probably will have to wait for new generations of cards and the APIs to go with them, not that that's technically required.
My example of an i7 struggling was of course an exaggeration. One of my favourite htpcs is a 3.16ghz c2d which plays all my L4.1/5.1 without issue. But, on my fusion APU I'm stuck - ATI are famous for fantastic hardware and awful drivers... I can play L4.1 all day long, but L5.1 is completely garbled, mpeg2 is obviously too futuristic for xvba to even bother and deinterlacing chromas correctly is about as likely as, urrr me switching to a better supported OS.
The fusion is infinitely more powerful than ARM socs / other dedicated devices in media streamers etc.
There's lots of pirates still churning out divx/xvids yes (slightly unknown reasoning to me also), but all the 'proper' guys moved on ages ago
The pirate scene still provides the most choice of media and the most choice of encodes - The freedom that standard encodes of drm free media provides is worth my morals stretching a little. It's a little off topic of course, but everyone I know with a decent h264 collection has dvd/bluray/legit collections that dwarf anyone that buys into itunes/etc.