Movies play for me just fine for me. It could be a codec issue.
I recommend you try VLC media player:
http://www.videolan.org/vlc/It doesn't require any codecs, and is a highly reliable program capable of playing just about any media file.
Oh, and go ahead and use the latest version of DirectX. AFAIK there's no need to use the old one included on the CD.
Back to the topic at hand though, I still haven't worked out the issue mentioned earlier. I've mostly learned to tolerate it, since the game looks so blurry in software mode, but those weird dizzy lines are still very annoying. If anyone knows how to fix this, I'd really appreciate the help.