I found with K-Lite 7.10 and 7.20, Screen Monkey didn't show thumbnails for videos. It played H.264 videos OK, so I don't think it was the ffdshow settings mentioned in Olie's post. Going back to 6.70 (plus 4.20 for 64-bit, available here: http://www.digital-digest.com/softwar...) helped.

I also had to choose just stereo sound (2.0) when installing K-Lite, even though my system is actually 4.1, otherwise videos played with SM with smooth looping turned on sounded muffled. I guess the channels were getting confused and the front speakers were getting the rear signal or something.