Here,let me explain to everyone who DOESN'T know what the difference between hardware encoding and software encoding is.
In all of the archos 04 series PMP's,they have a main processor,and a video coprocessor...
What you are describing is the Texas Insruments DaVinci chipset in the Archos 604 WiFi... It is a standard ARM processor with the multimedia coprocessor designed for off-loading video and sound jobs from the relatively under-powered CPU. I think the Archos 604 WiFi runs at a little over 200 MHz... Which is not horrible for a portable device... But it has no math CoProcessor for real number crunching. Archos multimedia apps are specially compiled to make use of the DaVinci... So after the machine gets hacked to allow user software on it, we are likely to only see apps compiled with standard ARM compilers... and it would be better not to totally replace the OS... just add the desired apps.
Personally, as for this USB thing, I cannot see how a USB dongle can possibly beat 2+ GHz Pentium processor in encoding video. The only advantage is that you can still be using you PC while this thing does its stuff.