Windows 7 - Xbox 360 MC - Videos pixelated despite video quality

I was using Windows 7 on another computer and getting 360MC working just fine with it but I just reformatted a laptop and wanted to connect the 360 through that instead and now everything is not going well. The videos are pixelated and always showing in full screen (the black is to the left and right of the video) even if it's a wide screen video/movie.

I've tried messing with the firewall, fail.
I've tried installing new codecs, fail.
I've tried resetting the whole network, fail.
I've tried seeing if there were settings that needed to be changed but couldn't find any.

I'm lost and have no idea what to do now. I did the network tuner since I'm connecting directly to the router via ethernet with the 360 and I'm wireless (N) on my laptop and in the tuner I get full bars for HDTV.

I'm currently using the latest version of klite codec pack (full v4.7.5). The videos look great on the laptop but very ****TY on the 360.

Windows 7 build 7077.