I had a microstutter with the ATI 5.0 player that I just couldn't get rid of, even at about 25% CPU Utilization. I switched to PowerDVD, CPU dropped to 20%, and microstutter has not reappeared. So, I've stayed with PowerDVD.
Todd
More than 256MB is probably not going to help you for DVD playback.
The Radeon 7000 should help quite a bit. You'll probably want to switch to a DXVA-compliant player (PowerDVD XP works well for me, as does the ATI player with the card), and snoop around the web for the DXVA drivers for...