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not sure about 720p, but most 1080p video require either LOTS of processing power (something equivalent to a X2 4600+) or a dedicated graphic card to play smoothly even with the right codec.
I wouldn't be surprised if you laptop is too slow to play any HD video.
I don't think adding ram would help your video playback, but you'd probably want to have at least 2GB anyway if you are running vista.
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