Personally I use a NVidia 8500GT which does h.264 just perfectly, it also has HDCP, HDMI out and cost $160 bucks NZ. Most of all its dead silent (ie passive cooling). The initial drivers didn't scale/overscan correctly, but thats long since been fixed. Current drivers are rock solid and output both 720p and 1080p perfectly. It also supports all of NVideo HD Pure Video feature set. Only down side is because its silent it takes up 2 slots.The ATI HD 2600 cards ar this same sort of price ($140 - $180), in lots of varities including passive. All the ATI HD 2400/2600 cards have hardware h.264 and VC1 support, as well as HDCP support. Some have HDMI port on the card, some had a dongle adapter (but full HDMI support including audio on the card).
Having said that I also have nothing against the ATI cards (have used both in the past), but when I looked I couldn't find a passively cooled ATI card which did h.264 (incl 1080p), w/HDMI for anywhere near the price...
I havnt been using the card long enough to form an opinion on how solid the drivers are.