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From what I understand and Wikipedia says, (since MS doesn't seem to clearly state technical details), HD DVD has MPEG-2, VC-1 and H.264 as video codecs, Dolby Digital, DTS and DD+ as audio ones. Now, Vista will ship with the VC-1 decoder obviously as well as MPEG-2 and Dolby Digital one, so MS is claiming Vista can play HD DVDs. Also, most HD DVDs you get today use VC-1 since H.264 is too heavy for decoding. Right?

re: some1's comments

H.264 is certainly not too heavy for decoding.  H.264 is no more complex than VC-1 and has its roots in video conferencing products like ISDN-based Polycom VTCs, Microsoft NetMeeting, etc.  

The issue here is that H.264 in it's HD/BluRay video playback form requires that a playback license be paid for as well as the playback software itself.  In the case of the Xbox360, Microsoft has chosen the ATI's H.264 software/technology to playback HD-DVD content - which should be no surprise considering ATI manufactures the video chipset used in the XBox360 making them the obvious best choice for creating the most optimized playback software for H.264 for the XBox360 video chipset.

You are correct that today, most (if not all) HD-DVD discs are encoded using the VC-1 codec to playback HD-quality video.   This frankly has more to do with the fact that VC-1 is a visibly better codec in many common scenarios than H.264.  So one would think that it would be relatively easy to use HD-DVD on Windows Vista-enabled  workstations, given VC-1's origins.  (VC-1 is a derivative of Windows Media 9.1 Video)

However, HD-DVD standards state that for any HD-DVD playback to occur, all codecs must be available and present on the player - one reason that a 3rd party player is needed.  Additionally, compliance with a littany of "safeguards" to prevent HD-content duplication must be enforced by the player by the decree of the HD-DVD standards steering committee. (DVDForum)  Hence, another reason 3rd party players come into play.  They're the ones responsible for complying with these "enforced safeguard" rules.

So this has less to do with codec support and more to do with the standards and conditions by which HD content can be played back.

There was an article on sometime earlier this month or late last month on a statement that was made from MS on HD-DVD support. They said that HD-DVD playback will only be supported natively in the 64-bit version of Windows Vista. The 32-bit version of Vista will only support DVD play back natively, but players from Intervideo and other DVD player software companies can be installed on Windows Vista to playback HD-DVDs.