Argo, what is the error message you are receiving? Cannot find suitable decompressor?
I don't use Media Player 7, but something you could try is to check the file type association for .mpg/.mpeg (etc., and other video files) files to see if is has changed. This can be viewed under folder options (from any folder window including Explorer, or, from start --> settings --> folder options. Go to File Types and check to see if the "Registered File type" above is properly associated with Media Player 7).
Or, if you're not entirely familiar with this process, you can remove the entry, and re-associate it with MP7 when prompted with an "unknown file type" dialog after clicking to open an mpeg file.
If you would like to go back to Media Player 6/6.4, associate the program Mplayer2 with your video file types as described above.