A little discussion on the history of graphics on the Windows platform. One of the key goals in Vista is to take advantage of the hardware improvements and shift more processing to GPUs and so on. This is a shift from Gdi/GDI+/DirectShow to the new Direct3d and Windows Presentation Foundation.
Direct3D 9 is available on XP. Direct 3D 10 will only be available in Vista and is geared towards simplifying access to new functionality on modern graphics cards.
Windows Media Framework is the long term replacement for DirectShow and Windows Media SDK. It enables simply playback of protected audio and video. It also provides what they are now calling "resilient media playback" - that is, it will adapt to spikes in resource availability. This is especially important as we move to more and more intensive HD content.
This 3D power is not tied simply to graphics and games, but is very open to the text engine as well. It is what makes custom fonts and stuff available.
He then showed a demo of a videos and pictures mapped to a cloth surface. The cloth then drops over a table, and you see the video playing the entire time. This was very cool and very, very simple to write. In fact, the only real complex code was the physics engine that was written to handle the flowing cloth. Everything else was just a handful of lines of code.
A big message is model / view separation. This allows designers to do their thing, providing better separation of functionality and styles. In many ways, XAML is being positioned as HTML + CSS for Windows applications.