4) Set the Windows 7 theme to a Basic theme (non-Aero). Not having Aero enabled should not be an issue if this is a dedicated HTPC that is not meant to be operated outside of the Windows Media Center environment. Setting the theme to Basic eliminates potential balloon popups and desktop flashes when transitioning to playing video in TMT5 inside Windows Media Center.
5) Make sure any other programs that might be involved in launching playback are set to hide there status or progress.
6) Your ISO videos should launch from selecting the cover art inside Windows Media Center Movie Library.