As Chris mentioned, the legacy comment in this case was directed at PC type IO. The goal here was to make this more AV centric and less PC centric. I agree that most people will not use the legacy component or even VGA, but most HD panels still have those types of inputs, hence those were added to give people connectivity options.
If this board is successful, future revisions could slowly remove those from the back panel as well. However, VGA will probably stick around because this is still a fully functioning PC, therefore, there may still be a market segment that could use this in a PC mode that just happens to be a good enternainment platform as well.
G vs M, these are very similar parts. However, as mentioned, the elimination of PC centric IO and the audio are things that set this board apart. Also, with the addition of the side port memory, we believe that graphic performance will be dramatically improved. There could be some additional performance improvement in video content as well, this still needs testing.
As for digital SPDIF, this is being handled by the Realtek 888 codec that is on board. It is passed through the D2 part, but they are not processing anything on the digital SPDIF right now. We are looking at how best to address the digital stuff in the near future. Therefore, the PC still decodes the Dolby and DTS signals via your codec.
The beauty of the D2 stuff is that it is very flexible and programmable. There will be a lot of stuff we can do with the D2 stuff that has not even been mentioned yet.
For example, the D2 stuff can do Speaker and Room Equalization, Psychoacoustic Audio effects, Virtualization of rear speakers in a 3.1 environment, etc.
D2 sells their technology to folks like B&W, Control 4, HK, etc. Their technology has just been integrated into the HTPC box to drive high quality audio out of the HTPC.
The solution can be used with or without an AVR. If you have a nice AVR, then plug in the 7.1 pre amp card and pass high quality audio to the AVR for playback. If you don't have a nice AVR, use the 5.1 Amp card and drive your speakers directly with high quality audio directly from the HTPC.
The D2 parts are seen as a standard HD Audio codec that is using the MS supplied drivers so protected content playback should not be an issue. It is all contained within the box until it is played back.
I think passing the audio out the D2 analog audio connetors to the AVR should provide better sound quality than digital PCM.