Ok, I just registered to help you.
Uninstall every codec and video player you installed. (fresh install is ok too if this is just a media machine)
Do these in the order I give you.
1) Install http://ac3filter.net/projects/ac3filter/releases (do 1.63b, I'll check what I use when I get home and update if needed)
2) Install http://www.cccp-project.net/download.php?type=cccp (Best codec pack I have found .avi .mkv even some file types I have never heard of... http://www.spacetelescope.org/videos/archive/viewall/ they have some weird file types) See step 5.
3) Configure Windows 7 to know how many speakers you have. (default is stereo so get it in 5.1 or whatever)
4) Configure ac3filter to know how many speakers you have.
5) If you didn't configure cccp when you installed let it know how many speakers you have too
This should get you going. I have been using this setup since spring and ac3filter for years. ac3filter is great if you want to have total control over all of your speakers. I have 1080p Plant Earth (.mkv) and when I go to bed sometimes with ac3filter I will turn off center (narrator only plays over center) and just listen to the nature sounds over all of my speakers... if you don't want to turn off center you can also use a voice control to turn off voices (but some sounds will be quiet over the other speakers so i just turn off center).
I hope you can get it to work. Sound plays the greatest role in entertainment.
EDIT: I also have quicktime installed dunno if that mattered in my install. I HATE divx and will never install it. cccp will install probly xvid and other stuff you'll be able to play every video type. With this configuration you will not need to install any other video players, everything will play in windows media player. If you hate windows media player just use VLC because all other players suck and I don't like to use it because I can't control all of my speakers so I just stick to this and use media player so I can have all the control I want.
EDIT EDIT: If you want to compress with h.264 (.mkv) use http://en.wikipedia.org/wiki/HandBrake