There is no settings, wouldn't think it'd be that simple. I really really want this tablet, so much so that I actually called Sony Xperia support knowing it'd be a waste of time (it was). They suggested that I put the video files locally on the tablet and it'll play in full HD LOL.
The Sony tablet community is very small so not much help there. There are other complaints about this by owners of the Tablet Z, and other Xperia products including the flagship Z1 phone. This is just a guess on my part, it might be some kind of licensing issue in the Xperia devices preventing streaming HD contents.
Perhaps not a good example of Android's fragmentation, but regardless your experience with an Android device is YMMV even with a big name such as Sony.
http://talk.sonymobile.com/t5/Xperia-Tablet-Z/VOD-and-HD-Video-Playback/td-p/362656
http://talk.sonymobile.com/t5/Xperi...vice-does-not-support-HD-playback/td-p/417467
Wow! I don't understand - that is sad