Okay the CPU was at 100% when the movie chopped, but it wasn't always at 100% because sometimes the chopping wasn't bad. It was still noticable that the playback wasn't smooth, but it wasn't bad chopping. So it did sound like Possibility 1 was my problem.
I uninstalled my video drivers and anything ATI related. Then I downloaded the drivers from ATI and DirectX. I installed the new drivers then DirectX, and then tried the movie again, with the necessary rebooting inbetween just about everything I did of course.
I had the same problem. I downloaded dvdrip and it was going to take an hour and a half to decrypt so I just went in the livingroom and played the dvd in there to make sure it worked. It worked perfectly so I ruled out a faulty DVD.
Although when I installed dvdrip I got an error when it first opened and I just hit ignore, maybe that might hint at a problem with my drive? Here it is...
Device:[0:0:0] ASUS DRW-1608P25 1.39 (D
Unable to disable media change notification.
Reason: The parameter is incorrect.