Nope, plays it pretty clear.. the sad part is.. only 1080i (no HDMI in the WDTV Mini) It is good enough though I have it for my room ^^
Well if you want to playback using hdmi you can always try the Asus O!play HDP-R1. It costs about 100$ on newegg.com, on a side note a bit more future proof with the other formats, but takes way long to read a external HD, flashdrive in seconds.