My limited observations have been that if the pc is powerful enough to do something in XP, it should work equally as well in 7, possibly better.
I have a second pc that's a P4 1.6 gHz with 768 RDRAM, GeForce 6200A-LE (cheapo card) and it plays most if not all multimedia formats and qualities (not BluRay) well on 7, 7100 being installed now.
As a random example, on XP with this PC, Winamp would take about 10 seconds to fully open as I had it set. On 7 set the same way, probably about 5 or 6.
You could be having a driver
issue that needs sorting, or maybe the types of video you are trying to play could use a better codec etc...
The 7 OS is a good one. With a pc like that, you should disable all services not needed. That can only help. Move your page file and temp directories to another physical hard drive if you have 2 or more.