All I use the HTPC for is to playback DVD's (all in file VIDEO_TS format) and video files like AVI and MKV.     Vista Media Center isn't terrible, but it's not perfect.  Often MKV files won't play in surround sound, and the biggest complaint is that it doesn't save where you are in the video when you go from one to another like a DVR would.  I often play something halfway through and then my wife gets home and we watch something else.  I have to keep a friggin' notepad on the coffee table to jot down where I am in the file so I don't forget. 

Can you guys recommend a better software for me?  Thanks!

 I am searching the net and I guess there is a free software for playing DVDs and video files. You may want to check this link: http://www.friedbeef.com/how-to-play-dvds-on-windows-for-free/

XBMC is great, Try it you'll love it.

 You can use MediaBrowser through Media Center.  That will give you a better interface and a Resume feature.  You can also configure it to use any external player you want like VLC.

+1 for MediaBrowser another good choice would be My Movies.

 I love the MyMovies back end but as far as I know it still doesn't have Resume.