I always use the mpeg encoder as this is what everyone can view on their computers.
I've personally never had any problems with this. The only thing that I can think of is that your graphic card is not optimised and that the renders that it has to produce is not adiqaute for the mpeg encoding.
That is justa long shot, but I would maybe try downloading the most current drivers for your graphics card.
I use the MPEG capture in animation a lot - only problem I have had is that it tends to run too fast when it is played back using Windows Media Player or Real One. Generally use Snagit now if I'm sending the MPEGs out to a customer because it maintains the same display speed as Pro/E.
Try changing the system colours to "black on white" - View, Display Settings, Sytem Colours, Scheme "Black on White". This will get rid of the blue background and remove the stripes. Improve the shaded resolution - View, Display Settings, Model display, shade, "Quality = 10" and "Show Small Surfaces". Also increase the Frame rate from the default 25 fps to 50 - file size is a bit bigger but usually not too bad.
You can open your assembly in Wildfire 2.0. You will have more options for mpeg playback speed, and probably better quality. If using 2001, make the viewing window the same aspect ratio as the mpeg output. Sounds fishy but it helps quality.