First off, a 1GHz CPU and a good 16MB video card is the minimum needed for smooth playback. That shouldn't be a problem these days... Otherwise, your computer specs are right on the edge and it'll need a major tune-up to get things smooth.
Try closing a bunch of programs, maybe even a reboot, maybe even defrag. The most efficient (CPU-cheap) media players to use would be Windows Media Player 6.4 and old 1.3x versions of BS Player (the DivX codec or filter is still required for playback). I'll just assume all other media players are bloated in some way.
If you're using the DivX codec/player for playback, go into the DivX Config and disable all post-processing and effects. If you're using the Directshow filter, ffdshow, disable post-processing. If your media player has settings for "colorspace" and "overlay", try turning them on/off and see if things improve.
If you're using the Quicktime player, go play in traffic.