I believe so. You also need an HDCP capable monitor too I think... I don't have the drive, but from what I've read, people have had problems with non-HDCP monitors even when they had HDCP compliant video cards.
Using only AACS licensed playback software, the answer is yes. Otherwise, it's perhaps.
If you don't have a compliant HDCP chain, both WinDVD and PowerDVD automatically enable downscaling of the image (WinDVD even does it even if you play unencrypted material)... The thing is, according to spec, they are not required do so to unless the Image Contraint Token (ICT) is set (which it isn't on current discs), yet they do it anyway.
Long story short:
1. Just plug it in + commercial player = Downscaling.
2. Decrypt + commercial player = Possibly downscaling.
2. Decrypt + reverse engineered/open source player (they're coming along) = Should be fine.