I am getting started on my HTPC Raspberry Pi build. I was wondering if I use XBMC I absolutely need to buy the codec to play all videos (if it is not hardware accelerated would it play if I overclocked it?)
Also if I use Raspbian with Omxplayer, do I still need to buy the licence?
The H.264 license is included. If you stick to H.264, you don't need an extra license.
DVD playback is problematic, because you can buy the MPEG2 license, but it's not currently possible to buy a license for the DTS audio.
You may be able to decode DTS audio satisfactorily in software on an overclocked RPi. For example an H.264 with 1536kb/s DTS audio I tried used 30-60% CPU @950MHz
Stick to H.264
If you're going to play any content except the MPEG2 encoded one, you don't need any license, it's already included. For MPEG2 content (read: DVD disks) you have to spend a few dollars and get a license.
You don't "absolutely" need license, unless you want to play the content (be it MPEG2 or VC1).
Regarding your build I strongly suggest you take a look at raspbmc, it's a highly optimised XBMC/HTPC distribution.
If the DVD you wish to play is already ripped to a drive, you can easily convert the files in the VIDEO_TS folder to a playable format sans license. Did and done. It's not worth my time to buy a codec that is potentially problematic anyway.
