What player are you using?? I use smplayer and you need to set the video output device to VDPAU.
To make sure its working you can use the VDPAU testing tool.
http://www.nvnews.net/vbulletin/showthread.php?t=133465
I get <5% CPU on 1080p h264 and VC1 using a £30 8400gs
Best to disable the composite extension for tear-free playback but you can get it working with this enabled by tweaking the compiz refresh rate settings.