My new HTPC

Your case was same with me... I'm also facing the problem when connecting my HTPC to my big screen TV... 

But when connected it through my Samsung LCD Monitor via DVI cable, everything was fine... and also, when I connected my LCD TV to the HTPC via
VGA cable, it also fine... the problem only rise when connected through HDMI...

BTW,  I'm only using Panasonic HD Ready 37 inch LCD TV... Not Full HD Plasma like you....   

I suspect that Panasonic TV has a problem when connecting PC through HDMI.. or it can't support it.... 

I Haven't heard any other TV like Samsung, LG, Toshiba have this kind of problem...

Yes, more than enough. Tested with integrated HD 4200 and Athlon II x2 250 before. Used my family low tech pc and hooked it up to my AV receiver. Worked flawlessly. However you might consider getting an ATI 5xxx card if your receiver has TrueHD and DTS-HD decoding.

can pentium 4 even play mkv or those 720/1080p movies properly?

installed TMT5 but haven't really gone in details with it...will give it a try tonight...

tried MPC-HC with few more titles..and confirm, it's not able to smoothly play the titles although its able to bitstream HD audio.  tried an MKV file with DTS-HD MA last night...and there's lip sync problem.  play the same title with XBMC, no problem (but unable to bitstream)

also, when i fast forward (drag the time slider) the whole thing freezes...

stumbled into this article Media Smart Server which apparently can use MPC in XBMC  doesn't look too complicated so i'll give it a try tonight and see what the result is.

edited:

k, so i've tried using MPC-HC with XBMC...i get HD audio, cos it basically means using XBMC's UI and launch a movie with MPC...effectively it doesn't change anything...attached screen shot of a m2ts title with DTS HD MA



its like watching Uncle Ho's DVD...as said earlier, same title with XBMC no problem.

what seem to be the problem?

I think Daryl.k want bitstream to True HD sound. What AVR u using now? If u want bitstream to HD sound u can try the method above which i write down.

Bro, where u get MKV file to bitstream Full HD sound???  If u want to play ISO format then u can try TMT3.
I was mention b4 mostly is some sound/video codec cause the screen become choppy/crack, if wanna confirm u have full clean the sound/video codec which cause the problem, i suggest format the HTPC and reinstall new windows again, then try follow the step from the link i post here. 
I never use XBMC, i use WMC with MY Movies install, it can play Blu-Ray inside folder  and ISO format with TMT3. But too bad that My Movies need to pay to active the movies backdrops.

Is this MKV file got more than 20GB???

i got a lot a untouch bluray quality all 20-35gb... 

this is budget ok for movie but only light gaming.
ATI 5570 = ~RM275

I don't think the hardware is the root cause of your problem.
even nowadays Intel HD graphics can handled mkv with hd bitstream.

i'm running the lowest ati 5450 with 256mb of ram and never had any problem with mkv with dts-hd. heck i even ran bdmv/bd.iso/bd disc with dts-hdma and never had any problem. even with high bitrate 24/192.

and all my movies are currently being ran with ati edge enhancement and denoise together with audio decoding to lpcm then upconvert to 24/96 before being feeded to the avr. yes, all 6 channels decoded to lpcm, then all 6 channels are upsampled to 24/96.
never had any lagging. but i did configured the system to ran hardware acceleration correctly. maybe you should do the same