Martin Peres mentioned this morning during his Nouveau talk at the 2011 X.Org Developers' Conference that during the reverse-engineering process they discovered a video decoder in several generations of hardware that NVIDIA isn't using. Thanks to some recent work, Nouveau can take advantage of MPEG1 and MPEG2 hardware video decoding (not using Gallium3D shaders for generic GPU video decoding) using this "PMPEG" support. MPEG4 hardware decoding support could come too, but there's at least four engines, different ISAs, and other complexities to handle by the limited development base. The decoder is exposed via XvMC.
This work was recently resurrected by Maarten Lankhorst back in July when he mentioned it on the Mesa mailing list. Maarten's work was finally committed to mainline Mesa on Saturday, 10 September. It was pushed by Younes Manton, the former GSoC developer that's been working on Gallium3D Nouveau support.
The Mesa side support was pushed in this fairly large commit. Video playback improvements to open-source graphics drivers is finally coming. Martin's demo of the Nouveau XvMC support was quite nice to illustrate the differences compared to just X-Video.