You just can't play them over DVI if your monitor doesn't support HDCP (without getting around it that is).
ICT (the downgrade thing you're thinking of) only relates to analog connections, while HDCP only relates to digital connections. ICT hasn't been put in use except for a couple of titles in Germany I believe.
I actually have a PC with the LG combo drive and PowerDVD.
Over analog VGA, there is no downgrading, the full 1080p resolution is available. However this is dependent on the ICT flag not being enabled, but the general accepted knowledge is that the studios will not turn ICT on anytime soon, possibly not until after the turn of the decade. This is how I playback Fox titles with BD+, because AnyDVD HD does not crack BD+ yet.
Over DVI without HDCP support, you need AnyDVD HD to get playback. Without AnyDVD HD, playback will halt with an error because HDCP could not initialize. There is no downgrading because there is no playback, period. I use AnyDVD HD to my older model Dell 24" monitor which is not HDCP compliant over DVI to watch everything except for Fox titles.
Over DVI with HDCP support, playback occurs normally as with a standalone player to a regular HDTV. My friend has a newer model Dell monitor which support HDCP over DVI, and he plays back all his movies with nothing but PowerDVD.
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