rikhyray - I hear what yer saying, but don't forget he needs some of that CPU power for audio! Personally I generally run audio and video on seperate machines, but if I can't do that I really have to keep things lean and mean in terms of the video as my music tends to be quite processor-hungry to start with. You're right - we can probably wave goodbye to the bad old days of 320x240, but I wouldn't necessarily say HD resolutions are necessarily always possible. For simple movie playback I doubt the graphics card makes much difference to be honest, and I don't know how 'GPU optimised' Live is anyway.
To recap on the codecs - MPEG4, Sorenson and H.264 etc. are great for everything EXCEPT this. They produce good quality at tiny file sizes, but are comparitively slow to decode. Photo JPEG is old-school (sorry rikhyray), and is a less efficient compressor, but it's still the best for most live video applications.
I use Photo jpeg too, for same reasons, no stress for CPU and me as well. The main point is. it absolutely amazed,shocked me. how lightly Live handles video. if he would try Livid, forget PAL; NTSC it hardly handles 320x240. Some video apps. would let you run Live on same computer, maybe Dj style 2 tracks, Arkaos works better then other softwares but if only Live is used, the video track does not stresses much more then any other track. I personally prefer not only 2 computers but also 2 or more people- have musician(s) or DJ when I do visuals.
For anything else then DJ kind of 2 to 6 tracks, using Live only, with its video track is the most sensible solution.