Are you trying to play DVD movies, or just movies in .avi or .mkv from DVD disc? It might be your DVD burner that's holding you, though it shouldn't happen with DVD movies, only with .avi or .mkv.
Just playing commercial DVD.
I noticed something odd; VLC will play at the above stated resolution, but WMP won't - insisting the resolution is still too high. I will be adding a BD-ROM soon and I am concerned that this video card will not be sufficient if I am already having DVD playback problems with it....if it is the culprit...
but how do I find out??
Your video card is more than enough. My friend uses 2 screens to play 1080p movies on one and do rest of the work on GT 520, and it works fine. Could you try reinstalling the drivers? Maybe you have something running in the background that shouldn't be? Try turning on the task manager and see whether something is eating up your CPU resources.
You could probably try messing around with VLC's settings to make sure hardware acceleration is enabled.
And check Catalyst's video settings as well to see what video features it has on or off.
If you really believe the GPU isn't strong enough, you can double check with GPU-Z or AMD system monitor to see if the GPU is being used 100 percent. The HD6xxx series is a bit better than HD5xxx for HD video though due to a newer version of UVD.
Friends, I assure you video acceleration is enabled; both in Windows and VLC.
I am wondering if the card has got a problem....
As a test I ran a blu-ray through my main computer, with GPU-Z running (Thanks for the tip Kinggraves), and yes....GPU Load and Video Engine Load are working hard providing smooth playback (on a monitor rather than a TV in this case but I am sure it would do as well on the TV), unlike the Gigabyte 5450.
I am going to replace that card and get back to you all.
I appreciate everyone's input and time. You have all been generous and helpful.