I am wondering if hardware acceleration is possible?

You must distinguish between two type of hardware acceleration: video decoding and the actual display of the video data. Silverlight does support GPU video decoding for h264 and acceleration of video output for all kind of graphics.

It is very unlikely that you will get hardware acceleration for h264 decoding since this is also on linux quite complicated (different libraries with their own interfaces for different drivers), but the chances that we get acceleration for the actual video output are quite good. Silverlight uses Direct3D (DirectX) for accelerated video output and the Direct3D -> OpenGL translation layer of Wine is quite in a good shape. There is currently a bug in Wine which causes a deadlock when enabling video acceleration which was also reported to Wine as you can see here: http://bugs.winehq.org/show_bug.cgi?id=34252 . I think if this bug gets fixed by some wine developer we might be able to enable hardware acceleration on the next release. This should also decrease the CPU usage as Silverlight does not need to convert the YUV video data to RGB and we should get rid of tearing since we can wait for the V Sync of the display.

But as none of us is involved in the Wine DirectX part it unlikely that we can provide a fix soon if the Wine developers don't pay attention to the bug.

Oh wow..I really appreciate this!

Thank you for your hard work man!

Thanks Michael Müller, that solved my question.