I'm having the same issues with VLC, blocky/Pixalation with 64bit version of Windows 7.
Not what to do, watching movies is blah. WMP is still also a little blocky, so there must be an issue somewhere.
I have alot of video files (avi, mkv, vob) that has Dolby Digital 5.1 encoded. My comp is conected to my receiver via Optical Cable. When I select the proper audio device A/52 over S/PDIF the sound is choppy and stutters. I either have to use Stereo or 5.1. But the 5.1 settings is not Dolby Digital....