Just a note to add that yes, for now you're limited to software decode. To put things in perspective, an E4500 2.2GHz C2D will comfortably decode 1080p x264 up to around 35Mbps (possibly higher, I just don't have any higher bitrate material). It just goes to show the significant IPC improvements of C2D over Netburst, as current x264 codecs are mostly single-threaded (MS have a nice threaded x264 commercial encoder available but I'm not aware of any well-threaded decoders).
The bottom line is you really need a CPU upgrade

But for now give CoreAVC a shot, it sacrifices a little accuracy for much lower CPU overhead.