I have not-so-bad specs for my laptop:
– Dell XPS M1530
– Intel Code 2 Duo CPU 2.40GHz
– 4GB RAM
– Running Ubuntu Karmic Koala 9.10

I have no problem running 720p .mkv HD video files. No lagging, no dropped frames whatsover. However, when running 1080p .mkv files, especially those big sizes full-HD Blue Ray medias, I have:
– Lagging,
– Dropped frames,
– 100% CPU utilizations.

It doesn’t matter if I’m using VLC, or Totem Movie Player, it will always have those problem above. From what I’ve read, this is probably due to FFMpeg codecs for H.264 decoding.

However, I have a solution, found from http://ubuntuforums.org/showthread.php?t=1037625

Below are the steps:
1. Install mplayer:
sudo apt-get install mplayer-nogui

2. Run your 1080p .mkv files with it:
mplayer -vo vdpau -vc ffh264vdpau /path/to/the/mkv/file

Now the HD movies playing in my Ubuntu laptop are smooth as it can be.
Try it out. Cheers.