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The only hardware changes that I have made is to replace the original installed 512MB DDR333 with 1GB Crucial DDR333 RAM - it works fine with everything else.
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Have you tried removing the new memory and seeing if the problem still exists? There are (were) known issues with memory over 512mb on certain machines.
Turn off hardware acceleration: Rite click desktop>properties>settings>advanced>troubleshooting
Check task manager while playing a video. Check it again when playing the second “jerky” video. Sounds like a program or process might be running twice and both programs (two copies of the same thing) are trying to use the same memory address at the same time or are sharing the same address space. Along that line of thought, check virtual memory settings and “defrag” your page file. It’s impossible to do directly, however, if you disable virtual memory, defrag the drive and re-enable virtual memory, it defrags the page file.