I rebuilt my system using the 23708 snapshot.
My Core plays VOB's and M2TS (albeit the m2ts files are choppy - on Nvidia GS8400 using analog audio).
My MD using Revo 330 use to do HDMI video and audio but this time no Sarah or audio during initial AV Wizard.
On the MD aplay -l doesn't show NVIDIA HDMI as an option.
I had to set MD audio via KDE to use SPDIF as audio output.
Both Core and MD using alsa 1.0.18, 2.6.27-17-generic & 195 Nvidia drivers
MD plays M2TS with audio (choppy again) but fails to play VOB files. Screen returns to flickr pics with play/pause icons.
I've installed all codecs and lib files.
Scratching my head now - looking for ideas.
P.S. I also upgraded MPlayer to vdpau version in avenard repo on Core and MD. Only mplayer - nothing else.