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Okay let's try some standard things.
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.

He has tried some of this, already, try it all together.

If that does not work:
Please run a DirectX Diagnostic:
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
 
Okay let me know.
 
Did you install DX 9.0B from the CD?
 
If that does not work:
Please run a DirectX Diagnostic:
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

IE please post the rest of the report up to the heading that says “DirectX components”
 
Well a few things.

You did not run all the tests on each tab like I asked.

You have low memory, you really should have at least 512 for XP.

The big thing though is the VIA drivers, They are known to be buggy, :(
Not much you can do about them other than get a new Motherboard.

You could check to see if they have an update that may help somewhat.

Make sure you have installed to C drive and used the default folder.
 
Most likely a combination of both. ;)