Quote - Existing hardware will work with Vista - it just won't be allowed to handle certain protected content - and that depends on the content -

This contradicts Vista, Vista depends on a special hardware for the protection will be effective, with normal hardware you can always send to it a protected material and the video card will show it and the audio card will play it.

Quote - The non-trusted devices will not have the capability to decrypt the content.

To something be decrypted it must have been encrypted first by Vista, if nothing was encrypted a normal hardware will be able to handle it.

Quote - The "non-special" hardware would not have the data sent to it at all.

But the non-special hardware can have the protected data. You are looking only at the end of the chain, you must consider the whole chain and a chain is broken at the weakest link.

1- The media that has copyrighted material
The DVD disk itself, and it must contain some information burned that tells the copyright information.
A pirate DVD has not any copyright information, so the chain is broken well before Vista enter into action. Vista will handle the pirate DVD as a free material.
2- The physical device that will read the DVD
This part kills Vista and is the weakest link easily to be broken. If Vista is allowed to use a normal and not-special DVD player, the normal player will encrypt nothing and would be able to output the copyrighted data as a normal data.
Even the data is encrypted in the DVD media the player can have a firmware to decrypt the data as is in home DVD players and output to Vista a normal free data and Vista will handle it as copyright free data.
The chain is broken here!!!, further efforts of  Vista are useless and a waste of CPU time.
Yes, the player will be not aproved by Microsoft, will not have the certificate, but the player will be treated as a normal player by Vista, but this "normal" player has the capability to output normal data from a copyrighted media and Vista will never know it!
If Vista is not allowed to use normal and unqualified players to play free data then we end again in expensive and not available hardware and so, Vista is useless.
3- The software path.
This is the only part where Vista DRM will work in practice, the rest is fantasy and myth.
Windows can read the information present in the DVD media and depending on the information Windows can treat the media data as free or copyrighted.
If Vista identifies a copyright information on the disk then it will encrypt the data coming from the normal player and this data will circulate in the computer and hard-disk  as encrypted data.
The piece of software that will be responsable for the identification and possible encryption is the DVD device driver and here the chain is broken again easily. If you replace the Vista DVD device driver by a custom driver or insert another device driver as a filter between the physical DVD player and Vista DVD device driver, the result will be a normal and copyright free data outgoing the device driver.
4- The destinatory hardware
The audio card and video card. This part has no importance, any normal data arriving to the cards will be outputed and if the data is normal the video and audio cards have no way to know if what you are viewing and hearing is copyrighted or not, for them is nothing more that a normal data.

Any hacking doesn't need to discover top secret keys or overcome sophisticated encryption schemes, for hacking you can ignore all this. You only need to inform Vista that what is copyrighted is not copyright and the rest Vista will do it. You only need to change few bytes of code and Vista DRM is gone!!
As a general rule, so spend one month or more in creating a protection for your software and this protection is cracked in only 15 minutes of work.
What a waste of money and men-hour!!!!

Stupidity also evolves!