Hmmmmm .... I got a suspicion your machine just might not be up to it, specially if you have much in the way of background tasks going on, or are trying to listen to midi files with other applications running. You have integrated audio, not a sound card, and I'm gonna suspect integrated vidseo as well, which both use system memory and processor resources, as opposed to having their own. It could be a resources issue. I could be wrong - thats just a guess.
I think it odd, though; one of my machines is a PIII 600, with 384MB of RAM, Win 98SE, and only a single 20GB hard drive, about 1/3 full mosta the time (mostly just the operating system and programs on the internal hard drive - output generally goes to an external drive), which plays midi fine - though it does have a pretty sophisticated 5.1 soundcard and a 64MB video card - as long as the machine isn't really crunching away at something else - its not real good at multi-tasking. If too much gets to be going on, it stutters, and once in a while locks up. About all I ever use it for
IS[/i] audio stuff; its the machine I use most often for recording and manipulating audio, analog or CD - in fact, the machine has both a turntable and a cassette player hooked up to it, as well as its own internal, late-model, high-speed CD-RW drive and an older, but quite adequate internal DVD ROM. While I prefer uncompressed audio, and rarely use MP3 or other compressed formats, it does fine with those too, including midi. I'd think your machine oughtta be able to do so too.
Still, I can manage to lock up a 3.4GHz P 4, with a pretty high-end motherboard, 2GB of RDRAM, a pair of 10,000 RPM 75 GB hard drives in RAID-0 configuration, a pair of 256MB AGP 8X video cards, a high-end 7.1 sound card which occupies a full drive bay, a pair of internal multi-format, dual-layer burners, a pair of big, fast Firewire 800 external drives, a high-def TV tuner card, dual GigaByte EtherNet, Wireless A/B/G, and Win XP Pro, too (oh, and you betchya its huge, it has a real beefy power supply and a lotta fans, too :wink: - damned near capable of heating a small room when its working hard

) Its great at multi-tasking, real good at all sorts of complex graphics and video, super for gaming, in fact its overkill for most things, but even it will do only so much. Don't let anybody tell you the BSOD (Blue Screen Of Death) is a thing of the past with WinXP and modern hardware; I'm real familiar with it
How much stuff do you have loading at startup? Are there a lot of icons in your system tray, down there by your clock at the bottom right of your screen?