GPU memory is used for displaying the video and most likely also scaling (resampling). This is not a 3D game where textures have to be kept in mem.
Maybe you have too many filters installed and more than one of them is doing the post processing.
The files were Advanced Simple MPEG-4 and bitrates weren't too high at all. You can try downloading VideoLAN Client (VLC). And if the video plays Ok (without post-processing), then it means there's some redundant processing going on in DirectShow.
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