MII12k is more than beefy enough. I had a M10k and it was just fine for CarPC use, just not powerful enough to run AutoCAD/Photoshop on the go which I do.
Also, such a high process % for your frontend is not good. Try RoadRunner. On the M10k, it is about 5% (higher on load obviously), and is the "Mediacar Clone" that is currently being developed and optimized. It even uses mediacar skins I think, but that is before my time.
Also something that you should change is the memory allocated to the video. I know on my old M10k, the default was 32Mb or something. Way insufficient. Up it to like 128Mb or 256Mb. If you are only using 512Mb of RAM total, you may want to use 128. Since 1Gb of RAM is only a few bucks on ebay, you may want to spring for that before a whole new system.
The new system you selected is very much overkill for CarPCs. It wont lag for sure, but neither will your M12k. And just to let you know, I used a full non-optimized install of XP Pro on my little via board, and it was speedy as can be for music, video, nav.
For your video problems, make sure you have the correct codecs and video drivers. If nothing plays, then probably codec. If it plays but is really choppy, you need the video drivers. Video drivers could also be a big problem for your above system. Default XP drivers work, but they are very very very slow and unoptimized. So on the m12k with default video drivers, you will get what you are experiencing.