I think your machine is fast enough that you may not need XvMC... and if you don't need it you might be happier without it. I put up with XvMC only because my AthlonXP 2100 can't cut it without it. Try disabling xvmc and enabling libmpeg2 decoding. (I think it's on the same page in the playback settings.) With mpeg2 decoding you should be able to decode without chopiness, ymmv.
What sort of deinterlace setting should I apply? That may be a problem as well, because if I remember correctly, the 1080i inputs are a lot worse than the 720p.
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