As i thought, the bottleneck in your system is your CPU.
Try not running other processes during playback. As I do not know what processes are running on startup or are started when a program is opened on your PC, I cannot give specific advise, but this is a standard procedure to stop resource hungry resources. Doing so may free up your CPU for heavy tasks like WMC - but read on...
I have read several reviews of your PC and none tested WMC as your PC's CPU/Chipset combo does not support DirectX acceleration and has a decoder issue but intead relies on the nVidia drivers
for GPU acceleration - which is why the other players run 1080p fine and WMC does not. Nvidia ION Platform: GeForce 9400 + Intel Atom (page 8) - X-bit labs