Negative Ghostrider, its actually buit in to the hardware. All players will not output higher than 480p if HDCP is not enabled.
There are two separate issues here that interact together. HDCP by itself is just an handshaking scheme that allows encrypted communication between one hardware device to another.
Image Constraint Token (ICT) is a "flag," that if enabled, would tell the player to reduce a full-resolution digital signal down to 540p.
HDMI devices are not required to support HDCP, and currently no known Blu-ray or HD DVD discs use ICT.
Therefore, as of Dec. 07, HDCP is roughly a non-issue except for high-definition disc playback in a PC environment. Of course, this is likely to change.
In a PC environment, an HDCP-compliant monitor and graphics card is required for Blu-ray and HD DVD playback from within Vista. This is an artificial requirement created by Cyberlink (PowerDVD), Corel/Intervideo (WinDVD) and Microsoft—as again, NO current Blu-ray or HD DVD discs have the Image Constraint Token (ICT) enabled.
From Wikipedia,
"Content providers for HD-DVD and Blu-ray media can set an Image Constraint Token (ICT) flag that will only output full-resolution digital signals using a digital HDCP connection. If an HDCP-enabled player is connected to a non-HDCP-enabled television set with a non-HDCP-compliant analog connection (VGA or Component), and the content is flagged, the player will output a downsampled 960x540 pixel signal."
http://en.wikipedia.org/wiki/HDCP
If you use component instead of HDMI your max output resolution is restricted to 1080i.
That's not true. The XBOX 360's HD DVD player will output 1080p over component, VGA and HDMI. However, some HDTVs do not accept 1080p signals over component. That's why Microsoft offers a VGA cable, and of course HDMI (on more recent units).
"Users can expect 1080p upscaling immediately on current games and DVDs and native 1080p on compatible HD DVD titles, but Microsoft hasn't yet announced future games that will rock 1080p natively."
http://www.engadget.com/2006/09/20/xbox-360-adds-1080p-hd-dvd-drive-for-november-17th-in-japan/
And,
"IGN: There are very few 1080p native HDTVs that accept 1080p via Component connections. The signal will only come in as 1080i and be de-interlaced back to 1080p. How is the 360's new 1080p support, in practical application, going to be any different than what was already possible?
Microsoft: We can offer 1080p support through both the VGA connection and the Component connection."
http://gear.ign.com/articles/735/735860p1.html