Yes the Pi's graphics chip can decode h264 in hardware in realtime... It can also encode h264 in realtime to, that functionality comes free with the Pi
Dude, ur exploding my mind.

Does Ouya have all the same magic that Rpi has, just more?
Can I assume that a Ouya would play movies even better than Rpi?
But just because Pi can do something in hardware does not necessarily mean it can play every single movie at 1920x1080 @60fps. Some movies are much harder to play than others, especially scenes with a lot of small moving objects everywhere while the camera is rotating. That is phenomenally hard to play correctly.
My bro has this pc with a 2Ghz core2duo and some kind of gfx card and it has severe problems playing 1920x1080 movies. It can sometimes play them ok but usually the framerate jumps up and down wildly during the movie even when 2 ppl are just sitting there talking to each other.
I need to ask you a question: Do u (or did u) play a lot of FPS games on your home computer?