According to Fudzilla'a testing on a Atom system, the Atom plays DIVX, AVI and DVD just fine but when it comes down to playing HD video at a 720P resolution, it just cannot do it.

 

Once a HD file has been started it can utilize up to 100% of the CPU usage, with 85% being the average. Sometimes playback can become un-smooth and stutter. Below are two images taken by Fudzilla showing the Atom system and it's CPU usage

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Since most of the Atoms will be used in small notebooks HD playback will not be necessary, but it shows that Atom cannot keep up with Tegra.

 

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