Credit goes to shaundennie
http://www.nvnews.net/vbulletin/showthread.php?t=106746
UPDATE:
12/26/08
The steps in this post fix tearing in XVideo/X11 and improve desktop responsiveness, but they do not fix the skipping issue.
Problems with desktop responsiveness mainly appear to be attributed to Compiz or Ubuntu's autodetection of refresh rate. Compiz or Ubuntu will round down display refresh from 59.99Hz to 50Hz instead of setting it to 60hz. This rounding down of 10Hz seems to cause the slowdown that many people are experiencing with Ubuntu desktop performance. To overcome this, you need to manually set your display refresh rate to 60Hz in CompizConfig Settings Manager.
Fore note:
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A few days before executing the steps below, I reverted to Nvidia 173.14.12 and VLC 0.8.6h
It's entirely possible that you may be fine using Nvidia 177.80 or 177.82 with VLC 0.9.4
or later after following the steps below. I have not tested further. If you encounter success
with newer drivers or newer vlc, please post results.
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STEPS:
Compiz Configuration
1. Download CompizConfig Settings Manager from Ubuntu repository.
2. Navigate to.. System --> Prefences --> CompizConfig Settings Manager
3. Navigate to.. General --> General Options
4. Click "General Options" to open window
5. Click "Display Settings" tab
6. Uncheck "Detect Refresh Rate"
7. Move "Refresh Rate" slider to 60, or set 60 in the box
8. Check "Sync to VBlank"
9. Click back button to move back to main CompizConfig window
10. Navigate to.. Utility --> Video Playback
11. Uncheck "Video Playback" then exit the CompizConfig Settings Manager.
STEPS:
Nvidia Configuration
1. Pull up nvidia-settings
.. Navigate to.. Applications --> System Tools --> nvidia-settings
.. or open a terminal, type "nvidia-settings" , press enter
2. Click "X Server XVideo Settings"
3. Check "Sync to VBlank" _IF_ not checked
4. Click "OpenGL Settings"
5. Uncheck "Sync to VBlank" _IF_ checked
6. click quit button
7. click quit button
8. Reopen nvidia-settings to verify that config changes were saved.
.. IF they were saved, you are done with step 8.
.. IF they were not saved, ~/.nvidia-settings-rc in your home directory
.. may be under root permissions. You will need to chown chgrp for the file.
.. Then you will need to start back at Step 1 and repeat all steps.
IMPORTANT: Reboot your machine when finished. The driver changes won't function correctly until you reboot