I've had mixed results with mine... although it is only a 1.6GHz Core Duo which I've just upgraded to 2GB. I'm tempted to upgrade the CPU but that's a bit expensive, and I'm worried about the increased heat re increased fan noise.
It plays 720p absolutely fine, and some 1080i stuff works great too, but not all 1080i. I've tried watching some stuff that just stutters every 30 seconds or so. Not sure if it's just the file I'm trying to watch or that the machine is struggling.
However, it does look incredibly sexy underneath my TV - much better than any other media centre case I've seen. The sleek design, absolute lack of noise when it's running and the minimalist size of the box all helped enormously with the Wife Acceptance Factor.
If you do get the Mac Mini, I can also recommend the KeySonic bluetooth keyboard with in-built mouse. Works great straight outta the box

Here's a link to it...
http://www.overclockers.co.uk/showproduct.php?prodid=KB-001-KE&groupid=702&catid=23&subcat=&name=Keysonic%20Wireless%20Keyboard/Touchpad%20ACK-540RF