Interesting. While gaming has never been Mac's strong point, it is entirely unacceptable that a full-screen dvd should be choppy - in fact this indicates a problem of some sorts in your machine - even my iBook 1ghz runs DVDs immaculately. I would call apple on this one as it isn't right.
Also, I recommend you go to youtube and hit a search: "24 inch imac games" and you'll find that several users have posted videos of their aluminium iMacs running Quake 4, Counter Strike, Medal of Honor AIrborne, Battlefield 2142, and Bioshock at very impressive frame rates. It seems you'll have to perhaps sacrifice full resolution, but these games look to be running with hardly any chop at all. I think you have some kind of issue with your machine, it should be doing better.