I think the better answer might be "maybe." Other people watch HDTV using their older HTPC's, with similar equipment to yours, on their 720p displays but they probably are not using either an HD-DVD or Blu-Ray drive. Playing back either of the hi-def disks at 1920x1080 will require more horsepower than you have, but I'm not sure if that would be the case at 720p (your Benq's native resolution) as well. A solution for you is to pick up a better video card that has hardware decoding. If, as I suspect, you have an AGP motherboard, that limits your choices considerably to one of the small handful of ATI Radeon HD 2xxx series AGP video cards (nVidia doens't make any GeForce 8xxx series cards in AGP). Newegg.com has about half a dozen HD2000 AGP cards, some 2400pros, some 2600pros, that would do hardware decoding of your HD-DVD or Blu-Ray disks. If your motherboard accepts PCI-Express (PCI-E) video cards, you can use any ATI Radeon HD 2xxx series PCI-E card or any nVidia 8400,8500 or 8600 series PCI-E card.
As for sound, are you planning on connecting your HTPC to an HT receiver? If so, you need to get a sound card that has an SPDIF digital output connection on the back (either coaxial/RCA or optical/Toslink - whichever you have a spare input for on your HT receiver) to allow passthrough of the digital signal for DD or DTS processing in your receiver's surround sound encoders. The usual cheap sound card with an optical SPDIF digital output that is recommended on this forum is the Chaintech AV710, which Newegg has for around $30 shipped. Make sure you download current drivers for it - I have one and I ended up spending hours fiddling with it and various drivers for it before I got it to work for me.