Have you tried as said disabling all firewalls and antivurises as i also think it could be due to the media player attemtping to download something such as song information, liscenses etcetera and as said the firewall and antivirus could be scannig it using up CPU power. Also if you havent already definately try dsconnecting the phoe line from the router as this will show you wether its the internet or the router and from there you could find a solution, ive never experiened anything like this from my usb adsl modem or my router, what make is the router? and do you connect using a network connection like ethernet or WLAN or by a usb or serial cable?

Im thinking if its using a usb, serial or other similar cable it could use up more otherboard and cpu power possibly affecting the performance but if you connect using a network connection it shouldnt affect the pu or motherboard as much.

i had the same problem but with bittorrent in place of winamp. i found out that it was my firewall which was screwing everything up. bt was being blocked but it kept trying to connect to peers anyway which resulted in a very slow pc. ;\ i had to unblock ports within the modem setup to fix the problem. hope this helps.

Maybe something stupid like 'automatic updates ' from windows XP.
While they are downloading and installing it slows down the computer also.

There maybe also update for windows Media player running.
When the computer detects you have broadband it start updating nearly everything these days.

i have an update on this one. i was trying to backup all my files by transferring it to another hard disk (our first hard disk when we bought the pc). i tried opening a video since i was kinda bored, when i realized that it's not choppy, unlike when the file was placed in this current hard drive. i turned on the router to access the internet so i could gather information on how to reinstall windows, when i realized that the router doesn't affect the playback if the files are stored and placed on a different hard disk other than what we're using right now. weird, but that's what's happening right now.

and i have to put my last and final update on this one. it seems that the problem was not the router or any processes for that matter, it's the OS itself. i've reinstalled our windows xp in our computer and found out that i don't encounter this kind of problem in the newly installed OS. although i'm wondering how that happened, since both the old and the new OS are windows xp professional. hmmm... but just as the same, i'm happy that i don't encounter such anymore.

I think that's the fun of using windows XP , if your computer runs a few years without reinstalling.
I becomes so slow that nearly everyone buys a new computer.
While it's just Windows XP that get large log files , swap files, registry files , so it's getting slow.
Mostly I make an image of the fresh installed computer.

And after a year (or when I've got some performance problems) I place the image back.