Windows 7 on my v 2,1 MBA is by far better than OS X on my MBA. The h.264 acceleration is much better in Windows 7. In addition, the Nvidia 9400m drivers are much better and more performance driven in Windows. Just need to manually update the drivers via Windows Update or Nvidia's own drivers on its site.
I haven't played videos from MDP to HDMI. I cannot comment there. However, I know there's a third-party connector available and now audio seems to be going through somehow because of latest updates. But you shouldn't rely on me for this. What I can say is the MBA does an amazing job of playing movies and HD videos on my 24" LED ACD through Mini DisplayPort.
Handbrake works great. I have always used handbrake to move DVD movies to computers for my kids.
YouTube is good but not great if HD. The problem currently lies in the browser. On Windows 7, the MBA is stunning for all HD and Flash video playback. In OS X, most apps do not have access to APIs needed for advanced acceleration and h.264 usage. This will change over time, as Apple finally offered API access to h.264 on the Nvidia GPUs. However, as of right now it pretty much doesn't have that access in most apps. However, when running HD videos outside of a browser, the HD playback is amazing. Just as good as could be. Always always use Windows 7 when wanting to do entertainment focused computing. Flash can be problematic, but it does better with the latest Mac version that's finally getting h.264 access via API from Apple.
Unfortunately Apple just hasn't given us the drivers to do equivalent OpenGL and GPU acceleration in OS X. It is a problem on ALL OS X computers not just the MBA. Notice on MBPs that the CPU usage is 120% or higher for anything intensive. At the same time, OS X 10.6.3 improved OpenGL by almost a full 100% from 10.6.2. When Apple "upgraded" to Snow Leopard, we lost about 30% of OpenGL capabilities. Apple redeemed itself with 10.6.3 update. Supposedly Apple is going further with 10.6.4. However, it just doesn't have the mindset to give us complete performance capabilities in OS X. I wonder if it's about writing "safe" drivers and not providing low-level API access to ensure stability over performance and capabilities?
It is odd, but Windows 7 provides at least triple the graphics performance from the same Macs that don't fair well in OS X. Windows is the place to be for graphical entertainment like games or HD video playback.
If we get an MBA update tomorrow, or at WWDC in two weeks, we could expect up to 80% better performance from the 320m and maybe better CPU performance if the CPU is de-throttled. There's always the possibility to get a Core series CPU and dedicated GPU also which could change the game further for the MBA. It is also possible that we would get an MBA with a Core series CPU and be STUCK with Intel's GMA HD for graphics. If that happens we will all be better off in Windows all the time or just sticking with the C2D Nvidia MBA we already have.
Good luck.