I really feel that people having problems with seeing the MPEG2 are ATI card owners and it has something with how the ATI drivers handle video output and some sort of issue with which "surface" the video is drawing on (hence why you can see videos in the media players but not in BoB), so I think it has to be a compatibility issue between how BoB wants it done and how ATI drivers want to do it. The other thing is that not only is it dependent on which "surface" the video is drawn on, but the method of rendering in the first place (hardware overlay, VMR-7,VMR-9, DX7, DX9, etc.)
Ah, this comment reminds me of something: a while back, I fired up a video viewer, something I don't do a lot of, and found that it wouldn't show the item I wanted to watch. After a bit of investigation I realized it wasn't displaying any
video including ones I had watched many times before, so I started digging. The main change in my machine was that I had been adjusting settings to run the 3D stereo VR headset I have, (I have an nVidia card) and I had the system set in "clone" mode, with the second video out duplicating the main output. The thing is, for reasons I can't remember right now, I had determined that in order to get stereo vision, I had to have the headset connected to the "primary" video out (this is designated in software, the connectors are pretty much equivalent). What I discovered is that though I had disabled the headset, and the stereo setting, I had left the main monitor designated as the secondary device. For some reason, the video driver was ignoring the "clone" setting regarding the video display, and thus the video was being sent to the inactive primary output, but not duplicated as per clone setting to the main monitor on the secondary connector.
The problem is thus similar to what you describe, the video was running just fine, it was just not displaying on my main monitor. I powered up the VR headset, and there was the video. It should have been shown on both outputs, as that is what "clone" is supposed to do, but I presume it was something flakey with the drivers. Swapping the monitor designations via the dual monitor software reset the main monitor as primary, and voila, the videos reappeared. (Of course, it took a while to arrive at this solution, and I went through a lot of flailing with different videos and viewers before I determined the problem was independent of either).