Yes its HD, its basically a 720p display. 720p is 1280x720 and the Macbooks resolution is 1280x800. You cant play HDDVD disks because it only has a DVD drive, but if you can find 720p videos online they'll look great! Apple.com has tons of free HD movie trailers.
If you buy a MacBook, check out the 1080p trailers at www.apple.com/trailers. Those are baaaaaaaadddddd. Like the above poster said, the res is basically a 720p screen (which, contrary to the uninformed, is HD). I think every computer screen that Apple uses is HD, so you're going to get good video quality.
Well the screen doesnt have the potential to display true 1080p (e.g. blue ray / hd-dvd) because it doesnt have 1920x1200 resolution
So it will downscale the picture I imagine
It won't display 1080P on the screen, but an external, say 24" 1920x1200 will show up just fine. even the older white models with the crappy Intel GMAs