Since upgrading to version 10.0.1 of iTunes, playback is bumpy
This might come a little bit as an obvious question but… have you restarted your box since you installed that? A zombie process could be causing delays in other areas.

Check with /Applications/Utilities/Activity Monitor.app and sort by CPU usage to see if there’s anything “red” (zombie) or any process not behaving. 

In any case, a sane box restart (if you haven’t already) is usually a good advice. Turn the box off for a few secs and then turn it on again, the VRAM might be corrupted and a simple “restart” won’t always do the right thing. (It happens to me in the Mac Pro).

The reason for mentioning this is that your computer is more than capable to play videos. 

Do you have Perian or any other third party codecs laying around that might interfere?