Poor video playback from movies and DVD in Quicktime and DVD player

Hello.
I have just taken delivery of a smashing Intel iMac C2D 20".
I appear to be having problems playing back video and DVD. let me explain:
When entering full screen on a DVD, the picture is very blocky (pixilated). This happens on all DVD discs I have used.
The same happens if I playback a MPEG or AVI, and also when I use Eye TV to playback TV.
I have run the Apple Hardware test, and it returned no faults.
The Video Card is the ATI Radeon X1600 with 256mb
I am sure that there is a problem because I have just compared playback using my old G5 iMac and G4 Powerbook using the same media files and DVD's and they playback fine.
Does anyone have any suggestions (other than calling Tech Support at this stage as I will blow a fuse after being on the phone for 1.5 hours getting nowhere, and with agents not knowing which keypresses to initiate stuff - sorry - Rant over - I just want to get this resolved)
As a side note: I have just installed Windoze XP on a partition, and the playback of DVD and MPEGS are fine - so it leads me to think maybe its software??
Not one to let things get the better of me - I installed Real Player and VLC.
BOTH of these play back the media correctly.
So I guess it is Software for sure, and I guess its Quicktime. Does Quicktime run DVD Player as well?
I did a roll back to a previous version of Quicktime, and it screwed up the mac. It would book, but would not load the Finder.
So I archived and reinstalled, and I had 7.1.2 QT, and the problem was still there. So up again to 7.1.3 and problem still persists.
I have come to the conclusion that this is to do with Quicktime on a C2D processor iMac.
Can anyone shed any light on this or suggest a solution?
Manythanks
Glenn

10.4.8 Combo update resolved issue

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