Finally I found a solution to the problem. It has to do with the video overlay and that the added subtitles are filtered out. The solution is a software kalled DivXG400. It is originally written for the Matrox Cards to primarily solve a pixel problem and add som extra features (as Subtitles to windowed fullscreen modes). I clipped the originators explanation of the G400 below. Might solve some other problems discussed in this forum.
"At the moment there is a small incompatibility between DivX ;-), MS MPEG4, WM7, WM8 codecs and Matrox G400/G450 drivers/hardware. If movie's width is not exact multiple of 32 (like 720x???), clip will be played back without using video overlay. If video overlay is not used, clips are looking choppy and DVDMax can not be used.
DivXG400 provides workaround for the problem. It acts as an additional DirectShow filter between codec and Video Renderer, adding black pixels to meet 32pix boundary.
In addition to "32Pix problem" fix, DivXG400 provides following features:
Image adjustment (Pan & Scan, aspect ratio correction, overscan compensation)
High quality subtitle display in windowed and full-screen mode. DivXG400 supports almost every known subtitle format: SubViewer 1.0, 2.0, SubRip, MicroDVD, SAMI, Sub Station Alpha 3.0, 4.0, JACOsub, DVDSubtitle, VobSub 3.0, 4.0, 5.0, 6.0, TMPlayer, SMIL-RealText, AqTitle. Additionally, MicroDVD INI-files are accepted as a wrappers to real subtitle files.
Subtitle output to TV in DVDMax mode (of course, all "classical" modes are supported, too)
Near to 24fps clip playback at 25fps
DivXG400 is codec-independent and should work within all players, that use automatic DirectShow Filter Graph generation (Windows Media Player, MicroDVD Player, Zoom Player etc.). Also, video codec must support YUY2 output format.
I've been informed, that DivXG400 has good influence over playing clips with several GeForce cards as well. So You may find DivXG400 useful even if You don't have Matrox G400. I think at least subtitle functionality is worth to try