Hrm... All caps locks? You know that is the forum equivalent of screaming? I never once insisted the arduino by itself could do it, as my OP clearly states I asked what chips could be used to do this, I never asked how to do it with just the arduino... the arduino's only function would be to MICROCONTROL the necessary circuitry, not BE the circuitry.
A lot of people on here have much more vast knowledge of IC's then I do, eventually someone will come up with a workable solution, instead of insisting it cannot be done... Perhaps I will have to use an ARM chip, I don't really want to though an ARM chip would probably be powerful enough to actually do the needed processing... but I am fairly sure there are chips out there dedicated to processing video, that the arduino could happily control.