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Make sure you have done the standard things first.
1) Rename the AVI folder to AVI_back
2) Set the color depth to 16BIT
3) Turn off everything in the background like E-mail/ICQ/Messenger, Virus protection and everything in the system tray beside the clock.

If that does not help do the following and I will see if anything jumps out.
Start menu –Run - then type Dxdiag, then select each tab across the top of the window, and run the tests on each tab. Then select “Save All Information” button in the lower right of the window. This will bring up a dialog box to allow you to select a name for the file where the information will be saved. You can save it right on the desktop as this will make it easy to find. Then copy the contents of that file from the start to the heading that says “DirectX components” then paste what you have copied into a post in this thread.
 
I doubt the Human eye make much of a distiction between 16BIT color depth and a 32BIT color depth. ;)
 
If you saw them side by side maybe.
But if you have your display set one way or the other you do not. ;)
 
Give us your stats maybe we can point out a bottle neck.
 
Well that is good news but the real cause of the problem is the 64meg, I would say 128 is the bear minimum for running ME. 256 for XP. but you really should have atleast double those.
 
Your welcome.