Is there a theoretical limit to compression @ fixed quality?

I read somewhere To achieve another 50% bitrate reduction at the same quality would require 4 times as much processing power. At least that is the aim of H265, it is hard imagining a 720P video with 700Kbps bitrate looks good.

That was 720p encoded with x264 using pretty fast settings. The clip was heavily denoised though:

Well, I don't think we could ever code a single frame in less than 1-bit :)... Seriously, there's huge room for improvements in video codecs over what we've got today. H.265 has a bunch of interesting stuff. But perceptually optmized preprocessing/postprocessing hasn't seen that much work for a while. HD DVD's H.264 implementation had theoretical support for parameterized grain synthesis, although it wasn't used in real-world projects. But imagine a codec which could heavy denoising on encode and then the decoder could synthesize visually identical noise patterns on playback. That could result in a huge bitrate savings for "difficult" content. In-loop deblocking could be more adaptive and flexible as well. Codecs are always designed to hit a certain decoder complexity budget. The more and faster memory and processing the decoders have, the richer the options the decoder can use.

There's no bad faith or purposeful blindness, I just can't see what point you're trying to make aside from stating the obvious. There's no law which says you "should" be able to encode anything in real time or faster, in fact as each new digital standard became popular chances are you needed the latest PC to encode it at a reasonable pace. Mpeg2, MP3, DivX, h264.... they were all the same. I didn't bother backing up DVDs in the early days partly because it took so long, but mainly because while my PC was doing it, it was basically unusable for anything else. Likewise I didn't start converting to Xvid until I had a faster PC, then I stuck with Xvid encoding longer than I ideally would have liked to because the PC I had at the time was painfully slow encoding x264. Will h265 be any different? Undoubtedly not. Chances are by the time h265 becomes mainstream the fastest CPUs might be able to encode it at a snail's pace. So once again it's either wait for CPU power to catch up or buy a hardware encoder. Nothing's changed. Nothing's new. My PC can encode x264. It'll be able to encode x265, even if very slowly. Your standalone player can't no matter how rigidly it conforms to "standards", no matter what processor it uses for decoding, and it'll never be able to no matter how long you wait.