Yes it does work.
I am using the proper 'intel' Xorg driver for my video hardware, and Mplayer is using the 'xv' video driver.
However, if you are using the generic 'vesa' Xorg driver or the generic 'Xvesa' X driver, then Mplayer has to use the 'x11' video driver, which does not do full-screen.
Note that the Mplayer package used in Wary has a wrapper script, 'mplayershell', that automatically runs mplayer with commandline option '-vo x11' for vesa/Xvesa, '-vo xv' otherwise.
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