Should work fine.
I often use mine to play HD MKV's on my TV using VLC. (mini thing to dvi, dvi to hdmi, with seperate sound cable)
Probably don't need 2gb to do that but at current prices there is no reason no to, I would upgrade if I did not already!
My advice.
Playing over WIFI is not recomended, it causes stutters though minimally. (N may be viable but the core duo's did not have it)
Also playing off disk can cause stuttering, though less than over WIFI.
I think VLC only uses 1 core, the machine will get hot but nothing to worry about. (probably best not to put it on kindling though)
For reference my mini can play 720p with occasional stuttering but mostly ok and that's a 1.5 core solo!