Just upgraded to the latest version of the NVIDIA driver (285.62) for my media center (Asrock ION 330HT), and it certainly improved flash performance, but suddenly some of the AVI files would not play anymore. Instead it gave an error message about it cannot play the video, because it cannot open the file.
I tried to restart Windows 7 (64 bit), but it didn't fix the problem. I was able to play the files directly in the Windows Media Player, but it still failed when using Windows Media Center (MCE).
I tried to google it, but there was no direct hits. But suddenly I found a forum post about a similar problem and reverting to version 196.21 of the NVIDIA drivers solved all problems.
After downgrading to 196.21 then all my AVI files worked again, and flash performance was still good.