Thanks.
It's not a network issue, I can easily watch 40mbps videos. These movies are only 10-15mbps video.
Just for the test I did what you asked and the results are the same (the file was copied at 100MB/s to the local flash...)
I decided to disable "Adjust display refresh rate" and everything started working again (I always have it on, I might have re-enabled it after the upgrade and forgot that it was after my tests... silly me).
I still hear dropouts every once in a while, from my experience with audio from the Firewire days it sounds like samples are being dropped due to depletion of audio buffer (ie: probably too small buffer for the current hardware/drivers).
So now I have 2 open issues:
1. How to make the video look good without matching the refresh rate
2. How to eliminate the audio dropouts.
Thanks.