Problem: Windows Media Center won't play certain types of videos (In my case XViD). It displays thumbnails of the videos but, when you attempt to play one it lags for a while then brings up a missing codec error.
Additionally every time you try and play one of these video files in Windows Media player, the program goes out to the net and tries and find a codec (usually this won’t be noticeable however if you are behind a web proxy with authentication then you will be prompted for your credentials) -- In my case its codec search fails -- but the video then plays fine (The latest version of XViD is already installed so it should)
Solution: The problem here seems to be PowerDVD - Un-installing it fixes both issues. Before uninstalling however you should try applying this patch from Cyberlink.