I've covered this point in a previous post which many didn't read!
It's not just the pc, but the way resources are being used - that's CPU and memory. Go here first:
See what's happening during AVI replay. If your cpu load is hitting 100%, then you have to do things. Like see what progs are running in the background and disable them. It shouldn't be a hard drive issue if there is plenty of RAM and the HD light is out a lot, because your caching to memory - so it's a CPU issue.
The next biggest prob. is some decoders seem resource hungry e.g Win Media Player. I tried out Morgan's MJPEG decoder and got my pc playing AVI down from peaks at 100% cpu load and jerky, down to 75% and much smoother. I'm running a 1GHz Athlon, 512Mb ram, 64Mb GeForce GFX and Win98SE. I think the MMX architecture is what makes the real difference for streaming video.