First I suggest you rip the movie to hard drive, and run the programs from hard drive. this will eliminate the optical drive from the problem. (for testing, I mean)
Then, your CPU is starting to become low end for heavy video viewing and transcoding/encoding. I know you use PowerDVD 4.0, but for example, do you know what are the requirements for PowerDVD 6.0?
... Processor: Pentium 4 1.0 GHz, Pentium M 1.0 GHz, or AMD Athlon 1.2 GHz or above*
... *Note: PowerDVD 6's advanced audio and video technologies function better when used with processors above 2 GHz.
My comment: this is starting to be rediculous, 2GHz CPU? WTF. They should use hardware assisted functions, or it's time to get from the closet my old Sigma Hollywood DVD card