I finally solved this problem. I don't know exactly which fix worked, but basically I changed the parameters in the server to try and stop it from altering the audio stream. And that finally worked... all videos now play perfectly.
Now I have to figure out why my PS3 won't connect. The PS3 sees my wife's computer and her WMP server, she is running Windows 7 and not even trying to share anything, yet the PS3 sees it just fine. On the other hand, my computer which shares the same connection to the LAN (thru a switch in my bedroom) is not seen by the PS3!! I have tried everything I can think of, I have opened ports, disabled firewalls, disabled Windows Defender, etc, etc, and still my computer cannot connect with the PS3 in the living room. The s580 that I can connect with is located in my bedroom on the same switch as my wife's and my computers are. The PS3 is on a different switch in the living room, it has a static IP on the same subnet as our computers in the bedroom. The only difference that I can find between our 2 computers is that mine runs Vista, hers 7.
Anyone have any ideas?