Will this system be OK for 1080p playback

[nlel1975]

E5200 overclocked to 3ghz
Gigabyte GA-EG41MF-S2H with X4500 (non HD) onboard

Or will I need to add a dedicated graphics card...

 

[Venares]

The CPU alone will have plenty of grunt to decode 1080p.
The x4500 intergrated should also be capable of 1080p DXVA playback providing you are using the MediaPlayerClasic codecs.

 

[Speed]

The CPU alone will have plenty of grunt to decode 1080p.

Very true, remember that even CPUs like the Atom 330 have enough power for 1080p playback and onboard graphics have improved hugely over the years.

This thread might be of interest to you regarding the graphics side of things: http://forum.lowyat.net/topic/1004289