Bought new HTPC, choppy HD video and need set up suggestions

Hey all, this is my first post. Been on the forums a lot but I am stumped. I bought a new Zotac Zbox ID83-U with 8gb of this ram, and this Samsung 840 120gb SSD after researching it awhile. All the reviews said it would play anything that was thrown at it. Its a 2.5ghz dual core with intel hd4000 graphics. I installed Windows 7 64 bit and all the drivers and everything is up to date, as well as frodo 12.1. I also have an Epson 705 HD projector I'm using as the video source. And for speakers I have Logitech Z-5500 5.1 surround sound speakers. I have the speakers hooked up with an optical cord from the logitech reciever to the back of the Zotec, and an HDMI cord going from the projector to the back of the Zotec. I also have a yamaha stereo system with hdmi hook ups if necesarry but setting up that seems more confusing than this, plus I don't have a stand alone sub for it.

The problem I'm having is that when I play 720 or 1080p movies it is way choppy and buffers a lot. It helped a little bit when I changed the audio output in XBMC from optical to analog but its still unwatchable. I played the same video with VLC media player and it played fine. Also I'm trying to figure out a way to get the best quality of video and audio out of my set up. I'm way picky about the quality of video and sound and this is driving me nuts If you need any more info please let me know.

Here is the xbmc.log http://pastebin.com/zyyC0QNr

Thanks