Since this item was posted in hackaday(January) a lot have been done. There is at least one[0] dedicated distro for running XBMC on the Pi.
When I tested it(about a month and a half ago, not with the latest version), it's wasn't a pleasant experience. Video did run smoothly, but menus where painfully slow. (I've used a slow SD card which might caused some of the problems - I ought to try again with a better one)