When you say encoding, are you sure you don't mean decoding (as in watching). If it's the latter then as long as you have a newish GPU (ATI 3450 or better) then that can do the decoding although you're cpu is bare minimal for the task as well.
If you mean encoding then the CPU is the main driver and it'll will do it; but it'll take a hell of a long time to do any encoding.
Decoding is what I meant bud, thats not the CPU I'm going to use by the way. I'm just trying to see what I can get away with using and what the rest of my spec should entail.
Well my htpc is below and it'll decode 720p and 1080p bluray and mkv files as well as scaling up tv to 1080p without missing a beat and bear in mind that this is an 'old' 939 system.
AMD 3800+ X2 (939)
2GB DDR400
ATI 3650
BR-RW
1.25TB of HDD
Some recent htpc specs have been waaaaay OTT for what is needed. As long as you have a HD able gfx card and a good hardware decoder (i.e. powerdvd8) then you'll be fine with most cpus from the last few years (pref dualcore)
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