Yes and no. It's a simple question with a lot of answers. Right now I plan on having two main modes: normal and direct.
Normal involves buffering at up to 0.5-1 frame of delay to allow the TV to continously sync up to the generated signal, no matter what the N64 is doing. As an example, many games switch between progressive and interlaced (Vigilante 8 even does this just for menu FX!) which causes the effective scan rate to change slightly. In direct mode, the video signal will necessarily cut out for 1 frame, and then the timings will change. So your TV will spend several seconds "finding" the signal again, and you'll see your TV's OSD "HDMI Input channel 1" plastered over the screen again. Irritating to say the least.
But normal buffering mode is able to overcome all this. Some people playing the prototype at a conference didn't notice any difference in Super Smash Bros. But in any case the option should be there.
Really curious, what is the video output mode of HDMI in direct mode? 480i, when the N64 outputs 480i? 480p when the N64 outputs 240p (so line doubled)? Is there also a direct mode for PAL games?
What is the output mode for buffered mode? Basically I am interested in how you process the incoming picture.
Also when you say frame, do you then mean 2 fields of an interlaced picture or one?