I can play 720p videos in the browser window (tested CM standard, Dolphin HD 7.3.0, Opera 11.50) - but switching to full screen only worked with cm standard browser - video was distorted with the other browsers.
...may be because of 32MB ramhack. I will test a 00 ramhack build from vodonka later...
For testing I used the Avenger Trailer HD.
OC was @1.3Ghz
ROM: CM7.2.0-RC0-KANG temaseks build P204-29
BTW: Playing HD videos with moboplayer works also flawlessly - and yes output over HDMI is ok too...