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This is the Audio Device Graph Isolation service, a part of Vista and 7's audio services. The real audiodg.exe is harmless, but like any file it could be infected. If it's not doing anything, it should be fine. The worst that can happen by ending it is your audio goes out, restarting your computer would fix that.
For the marketing term HD audio, see High-resolution audio. Intel High Definition Audio (also called HD Audio or Azalia) is a specification for the audio sub-system of personal computers. It was released by Intel in 2004 as successor to their AC'97 PC audio standard. During development it had the codename Azalia.