SendTrash, that is weird man, if there is one thing that does work for me it's the MP2, mpeg, avi, divx and timeshift, timeshift does take a chunk of space though.
Taz just posted a re-install, and I agree with him. I find that depending on the install things seem to work better. Read Taz's post and here's mine.
This is my personal opinion and it has worked for me and others I have corresponded with.
Here's what I recommend.
Goto rage3d.com and download the latest drivers and read the Radeon Guide and specially the part about the "HyperZ in the Registry" you'll probably need to tweak those reg settings.
1. If you have an Asus A7V board, update your bios to 1005C or later.
Once the bios update done, hard boot and go directly into bios again. Reset the defaults, save and HARD boot again, goto bios and then modify your bios all you want. save and Hard boot again.
2. re-Download DX8 or DX8a, VIA 4-1 v4.28 (if you have a VIA chipset) and the 4.13.7072 or 5.13.3100 ATI drivers.
3. Uninstall all ATI components using Add/Remove Programs in Control Panel
4. Locate the ATI Multimedia folder in C:\Program Files, and remove it
5. Do a Find Files and delete any ATI*.* files that you think should not be there.
6. Restart Windows (in VGA mode)
In this order.
7. If you have a VIA chipset board, Install the Via 4-in-1 v4.28 drivers from
http://www.viatech.com/drivers
...IMPORTANT: make sur the AGP support is loaded in Standard mode and not Turbo
8. Install (or re-install) the latest version of DirectX (8.0) even if you already have it installed.
9. Install the latest ATI display drivers, AND do not restart or reboot your system.
...IMPORTANT: If you update your ATi drivers in the future remember to follow steps 9 and 10 again.
10. Search and locate ATIGART.exe (in the ATI/Gart dir) and rename it to OLDGART.exe
11. From the CD - Install the ATI Multimedia Centre ONLY, no drivers or VGART.
12. Restart the system, set your video defaults.
13. Do the reg tweaks recommended from Rage3D / Radeon guide. Reboot.
You can re-install the 4-1 after all this, In some cases I found this also helps.
For some weird reason, this setup seems to work better. I have experienced that if I did it this way it cleared a bunch of problems I was having and was able to play MP2 files no matter where they are located on the HD. Hope this helps.