why not just use an sram chip with another avr microcontroller to copy video memory into and just have the ATmega 328 read the sram for video data?

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I guess you could, all I can say is have fun, and I would not use a atmega (or similar) , as stated before your going to be doing some seriously finicky coding as just driving a sync signal out of something like that (even with rs170), I would look at at least a 16 bit mcu