I've got the 735, which is a 1.6GHz chip, with the Intel 900 series and a GB of RAM. It plays 1280x720 h.264 with ffdshow decoder no problem. Average CPU use is around 70% with this particular file. CoreAVC would likely drop it by 3 to 5.
I would go with the Core Duo as well, if the funding permits. Having to fall back to a PM chip won't kill you though, so long as it's about as fast as mine.
Hope that helps.