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Where the projector is concerned, AVIs are not actually using WMP to run the file ... it actually uses the older Mplayer32 application which is also found on all Windows systems.
MPlayer32 does not natively support MPG4 and so if you just installed the codec it was likely introduced for a temporary period, but upon restart the system only loads the basic codecs for Mplayer32.
This is why a typical video project usually uses QT media or Flash media for videos, since many of the older codecs supported by MPlayer are not very "size friendly". In some cases they are also "quality" challenged.
QT media requires the user to have QT installed, but you can always include the installer on the CD for free, and many people have it already.
Another third party alternative is Real media, and there is an xtra in Director that will handle the files ... but again this requires Real player to be installed on the user's machine. You can, once again, include the installer on the CD ... but fewer people have it installed compared to QT.
The MPeg Advanced Xtra may be a way to go, since it will actually interact with the WMP engine, rather than the older MPlayer32 engine.
On the XP+ machines, I believe the older MPlayer32 app is actually cross-wired into the new WMP so it will allow b/c for some apps that use it still, which is why it works on the XP machine, but that will not happen on the earlier Win OS's