my first thought is that those videos actually are low quality ones and they are best viewed on small size. that would explain everything. BUT could you view your videos normally before the upgrade? if so you should contact microsoft support, they can explain these things. you can start here:
http://www.microsoft.com/windows/windowsmedia/ player/faq/default.mspx
if you don't have videos you played before the upgrade and you can't tell a difference, you can try to open videos both with ms media player and some other video player. this way you will be able to compare. maybe the problem is not with media player but with video files you've downloaded. if you don't have another video player i can recommend VLC:
http://www.videolan.org/vlc/