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I don't see any reason why isos mounted with daemon tools on a virtual drive wouldn't work... That's saying that the problem is a software problem not affecting media in general, only all DVD-playback, yet the problem is not specific to the DVD drive. It seems to be a problem, fundamentally, with the DVD playback...perhaps something wrong with the process by which DVDs are decoded during playback. Maybe reinstalling something would fix it, but I have no idea what you could try reinstalling...
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