Xbmc is reported to work tolerably well & you can pay a £1 or so to get mpeg2 hardware decoding in the GPU along with the mpeg4 that you get by default. (I know, I know: software should be free. Sometimes you get to deal the cards you've got & if you want mpeg2 decoding on the pi GPU, you have to pay for the key to unlock it to cover the licensing costs for the codec.)
I'll have to try it out myself.