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How do you know if your hardware does support it?
You can open your streaming_log text file (with WordPad) in the Program Files>>Steam>>logs folder, search for "CaptureName", and see if it has "libx264" listed or something else. If it's "libx264", it is software encoding.
So far, it seems only Intel HD QuickSync hardware encoding is supported right now. But that will change.
Though I don't know what it's called, also search for "DecoderName" in the streaming_log file to see what your hardware decoder is. It should be supported.
If you are not successful, try lowering the bandwidth (believe it or not). You might be surprised.
[Turn on the Display information. Start at 3Mbit/s, and keep working your way up. Also, don't gank your Host machine!!! Make sure it is solid 60FPS and up!]
Similarly, years ago when I first fired up Red Faction Guerrilla on PC, it was a slideshow in full screen mode -- nothing resembling playable and single-digit frames per second. I switched to windowed mode and suddenly it ran smooth as butter. Not sure why.
"CaptureName" "Desktop BitBlt RGB + libyuv + libx264 baseline (2 threads)"
So would software encoding be better for me?
Host: I5-2500, Amd 6850
Client: I5-2450m, Intel HD 3000
From what little I know, "libx264" means software encoding. So, yes.
Then, I tried running them in windowed mode on host, but it's far worst in this case : it stutter more than fullscreen, when the game doesn't simply run at 30fps... So this method may be game specific.
Host PC :
Core i7 2600k
Geforce 680GTX
8Gb DDR3
Client PC (Laptop) :
Core i5 430
Radeon HD Mobility 5650
4Gb DDR3
I don't know, but I do recall Batman:AA getting all jittery on my netbook when I had both hardware boxes checked. I can't remember what my configurations were at the time. It may have been when I pulled my GPU and was playng with QuickSync on the i5. You also have a super-strong host and an AMD processor. One, or both, of those might be negating this whole issue currently.
Are you getting "DecoderName" "VDPAU hardware decoding" for the VAIO in your log file? According to this post it looks like you might be right on the edge there. That might be your culprit!
EDIT : looks like the last update change something : now with hardware decode enabled (DXVA), it works much much better for me : less lag and a lot less stuttering (they are still present).