Well, there you go, you had no idea, did no tests, and stated your guess as fact. I just played a couple 720 HD avi files on MPlayerWii (r0n's version) and they played just fine, and I'm grabbing some mkv stuff to test tomorrow (not much out there that fits on a 2GB SD card :P )

Obviously on the Wii and my SDTV they don't play in HD, but there were no blocks, artifacts or skips. I'm quite confident that HD files can be handled in software to play smoothly on Wii - but don't take my word for it.

dCiSo? You wanna chime in on this?