Can you actually build an HTPC? My understanding is they can't really handle video, except from the purpose-built camera module.

That's exactly wrong. They have the same processors as used in phones, which means they have hardware level decoding for video. My B+ can stream massive 1080p blu-ray rips over ethernet with zero problems. They make fantastic HTPCs.

My phone doesn't ever play 12GB blu-ray rips; and the rpi hardware is older than current phones (which use armv7 and armv8). Given the speed of the cpu, it's surprising it can decode a full H264 stream.

But It's good to know. The down-vote seems unnecessary.

It's not so much software running on the CPU doing the work here. It's hardware support for decoding via the GPU that enables it.

I've been running R-Pi based HTPC since the original R-Pi release. I current run a distro called OSMC (debian based, with Kodi on top) on my R-Pi 2 and it plays everything I throw at it with out an issue.

http://osmc.tv

Been running OpenElec on mine for years now. Works great and does 1080p output without transcoding or anything like that.

There are several HTPC implementations (eg. RaspBMC). They're all pretty nice, but personally, I just use omxplayer, which is the command line package that powers RaspBMC under the hood. It's a command-line-only media player, but it plays anything I can throw at it, including live-streaming 1080p YouTube videos.

The command-line interface for omxplayer is a bit verbose, so I wrote a basic wrapper in BASH, so all I need to do is type "play <url>" and the video will begin streaming after a 10-second buffer. I keep a Screen session open on the Pi so I can drop in and command it from anywhere. At any given point, that little Pi can be simultaneously playing 1080p video, while downloading another two videos in the background. Incredibly capable little devices!

Nice idea. 70s era arcade games running on a processor with more MFLOPS than an early Cray at ~1/1000000 the price.