I'm currently using Xv on a Mobility X1400 (Lenovo T60) and 8.02 fglrx.
In both VLC and MPlayer, using the Xv output, video scaling is either not being done in hardware, or if it is, it has some problems, because full-screen scaling causes significant pixelation. It's nearly unwatchable.
The diagonal tearing thing is a known issue... I know that's being addressed. What's the status of the video pixelation problem? Is the video overlay really being hardware accelerated?
Using the OpenGL output in VLC allows smooth visual output (with a large performance hit) but the diagonal tearing is still there. I'm not sure why the OpenGL output would allow smooth scaling while the Xv does not.
Am I missing something? Is there an obscure rendering option that needs to be set in xorg.conf, or something that needs to be done with aticonfig in order to get the Xv output working properly?