Is there a setting somewhere yo yurn on overlay
most drivers have some separate settings for overlay (like gamma,saturation) in display properties-> advanced pannel.
Even if your overlay is not
working ,with processor of yours, you still should be able to play the video (only with much higher cpu usage).
See my example:
I have Celeron 1700mhz cpu/512mb ram
I launch fist instance of media player (start->run->mplayer2.exe)
and open video file. Take a screenshot:
since overlay is working, you see black window, cpu usage is 11%
I pause this player, and opne second instance of player
<overlay is already occupied> see screenshot:
You can see video on the second player (since no overlay)
cpu usage is 59%, when zoomed to full screen, cpu usage~90%
But your cpu is some 2-4 times faster and should handle the load even w/o overlay.
Did you try to rip the dvd to hdd and playing from there?
PS: I don't use winxp, radeon card and i use directx 8.0, so I can't help you with ither of these problems. Sorry.