Are you using 1.5x or 1.6x?
This sounds like the 1.5x problem, and I think most had some sort of slow video issue. I recommend the CCCP or K-lite Codec packs (google it). These contain FFDShow, but also many others that may help you out. There's also an app called g-spot that can be found on the Xvid site. Drag your vids to it and it will tell you if you have the necessary codecs on your machine. But, just because your PC may pass in g-spot, MaLa could still output bad video.
If this is 1.6, I suggest you post it as an issue in the 1.6 Mala Test thread, as theres a solid new video engine, and if there's problems, loadman needs to know about it.
And yes, MaLa will resize vids to whatever the box is (if you don't force aspect ratio). Some have had better luck with the SQ than the HQ vids tough.