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Why doesn't HLamp work in software video mode?
Because, quite frankly, it's not worth my time to add support for software mode. If you actually use software video mode you should be shot, and then you should buy a new video card. OpenGL and DirectX users should have no problems with HLamp.
It is open source tho so if someone wants to take the time to work on this little project, they could. Or you could just play with better graphics like us normal people do :).