It won't help stuttering films in terms of buffering/audio drops, but it CAN provide a smoother video of moving objects if the server is fast enough. Go with the native resolution of your screen (1080 in this case), then experiment with the refresh rates shown, something like 24,25,50 and 60, depending on your TV. You may find some work better than others.
If a video is updated (for example) almost 30 times a second, but your TV is set to update 25 times a second, you'll find those "extra" five frames and the way they are interpreted can improve/detract, especially in panning or high action shots.
Auto HDMI mode relies on a TV correctly identifying which modes are supported, and which one is native. I'm not a coder, I've personally only ever cooked ROMs that are based on existing ones, but if the TV and DBx don't understand each other, setting it manually is never a problem, BAR ONE SCENARIO...
If you've turned off auto HDMI, set it to (for example) 1080@30, THEN plug the DroidBOX into a small (and probably old) TV that can only manage 720, you'll not get an image on the screen.
Solution here is to remember to set HDMI back to auto whilst still on the big screen.