Check (with movie-file loaded) if DivX codec is indeed taking care of the decoding under
(rightclick >) Options > Filters> Advanced.
(Could be that you're using e.g. ffdshow without knowing it).
Also check settings under video-rendering
(rightclick >) Options > Preferences > Video > Video rendering.
[It may be necessary to unload/reload a movie-file in order to see any difference if you change settings under video rendering]
(My DivX-version (for WinMe) is 5.2.1.1335 which produces a really excellent picture; so I don't suspect your DivX codec to be the cause of a poor picture.)