Waldeck's method works for me too. Video does not flicker for me now.
There is a bit of tearing now and then, though -- in both, windowed and
full-screen mode.  CPU usage remains high too - about 30% for mplayer. I
guess this is what makes the video freeze for a moment when I am
switching applications or starting new ones.

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[fglrx] xv output not available for video playback
https://bugs.launchpad.net/bugs/197639
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