When all video files and DVD's appear distorted in more than one player on a computer the problem is usually hardware or driver related.

Most people assume it's a codec problem, but different codecs are used for different formats, so the problem goes a little beyond that.

The first step is to try adjusting the screen resolution you're using and perhaps the colour depth in "Start/Settings/Control Panel/Display/Settings"
I would not recommend trying to increase the settings, instead try to make the "Screen area" smaller or alter the "Colors" to a lower level.

The second step should be to update the driver for your graphics card.

The third step to curing the problem is to update DirectX http://www.microsoft.com/windows/directx/default.aspx
I always recommend using the web setup rather than the redistributable setup as Microsoft keep the web setup far more up to date.

If problems continue find the type of graphics chipset your graphics card uses and search the web for possible issues eg. go to Google and type in "FX5200 video playback issue"

FX5200 as stated above will draw greater search results than "Gainward GeForce FX 5200 256MB" for example, because many manufacturers use the same chipset.
The more information you put in your search, the less likely you are to find a result.