Last year the work began by Christian to get the Gallium3D XvMC state tracker working with the R600g driver. He achieved that with various features, but being Gallium3D-based means its using GPU shaders and not the dedicated Unified Video Decoding (UVD) engine found on modern Radeon HD graphics processors. Still though using shaders is a big performance win for HD video playback compared to pegging the CPU constantly.
With the XvMC Radeon Gallium3D work going well, last month Christian then began working on a VDPAU state tracker for R600 Gallium3D. We've now received reports that this implementation of NVIDIA's Video Decode and Presentation API for Unix is beginning to work for MPEG-2 codec on R600g. In the public there's also various messages on the mailing list about XvMC / VDPAU improvements for this Radeon-focused work.
Only MPEG-2 is the only codec known to work at this time for the VDPAU state tracker, but don't expect it to be bug-free at this point. All of this Mesa / Gallium3D work is also living in a separate Mesa branch and likely won't be merged to master for a mainline Mesa release within the next couple of months.