After having a chance to play with the popcorn hour a little more I have some more observations:
1) MKV playback is patchy at best. I originally blamed the skipping, jittering and audio drops outs on the heat of the day but in cooler temperature most of the MKV’s I’m trying still jitter to a certain degree. It plays back all the sources I have transcoded to WMV flawlessly, it just hates the equivalent MKV. Still looking for a solution or cause for this one. I’m looking in to the fan mods people have done which apparently solve this problem but one of the selling points of the PCH is the fanless, quiet design.
2) The upscaling code/hardware sucks compared to XMBC. This could maybe be a result of XMBC auto softening the image since it was going to the TV via S-Video and the PCH is using HDMI so the flaws in the lower res source are more evident but the XMBC just seems to produce a nicer picture, figure that one out.
3) Playing music videos though myiHome (so I can shuffle) every clip is missing the first second or two of audio, this is kind of annoying.
Of course, all these issues dissolve away when I’m sitting in front of the TV watching a HD movie (when it’s not skipping), but I haven’t unplugged my old xbox quite yet (and I’m still considering selling the PCH and replacing it with a 360 since it seems like I have to continue transcoding all the MKV’s anyway!).