Its a known issue. I've reported similar issues a few weeks ago with DVD playback in Vista Ultimate VM that I have. I couldnt test my DVD playback inside the VM and gave me a similar error.

My guess is it's related to WMP 11's DirectX dependance. Since VMware only supports DirectX 9 (without shaders), thats my guess for the issue.

Hopefully they can sqeeze that one out for Fusion 1.1, but who knows. The list keeps growing.

Regarding the Microsoft Robotica video (cute, but I like Pixar's Luxo better :^),
on Fusion 1.1b in a Vista-64 VM, I got no dropped frames in both 32- and 64-bit
WM 11, according to "View/Statistics". With a Longhorn-32 RC0 VM, I also managed
no dropped frames. This is on a late-2006 CD2 iMac.

Some advice: Go find a "Tweaking Vista" website and follow their directions on disabling
heaps of CPU-eating services, like indexing. Run in Classic Windows mode, and optimise
the system for program performance in the System control panel. Also, do NOT enable
3D in the VM settings - that's for XP and just messes up Vista.

Regarding WMV streaming, with a WMV 9 stream at 1 Mbps, I get best results with
WM11-64, one dropped frame every 10 seconds or so. With WM11-32, both in Vista-64
and Longhorn-32, I get about 1 dropped frame per second.

Strangely I get more dropped frames if I do "stupid" things like move the mouse around
or pull-down a menu, but that's Vista. In a XP-64 VM, WM11 is rock solid.