Steve,
There are two different Hollywood cards. One has an internal pass thru, the other an external one. The external one requires you to connect the projector/monitor to the Hollywood card. If you can get Windows while connected to the Hollywood card, and no dvd, I'd say the card is suspect.
Try uninstalling the drivers, and reloading the newest drivers available. If things still aren't working right, try recalibrating the overlay from the Hollywood control panel.
Still no go, I'd try another card. One died on me after a few months.
The external pass thru card doesn't change the RGB signal characteristics. It adds an overlay to it with the dvd images. If your desktop is 1080i, it will display dvds using 1080i...
If you've got an XGA dlp projector, you'd get a much better picture using Windvd with a capable htpc. If you close all other applications seen after a ctrl-alt-del, you should be able to smooth things out a bit. I also use wintop to see where my pc's cycles are being used if things get too choppy.
Good luck,
Jeff