There seems to be a correlation with people suffering from this problem - 2 of them own GeForce 2s, and they all own older graphics cards... A quick google reveals others with similar problems... And it makes me think: what resolution are you running at?
Older graphics cards don't have that much bandwidth for the DirectDraw overlays, and sometimes, if you're running in a very high resolution (over 1024x768) changing down a couple of notches, to 1024x768 or maybe even 800x600, can sometimes just make the overlay *work*.
If you can see no video whatsoever, give that a try - it could be that the graphics card just can't cope with drawing all the data AND rendering the overlay at the same time. If that's the case, and when you lower your resolution it works fine, then it's time to consider buying a new graphics card.
Also, if you have Netmeeting or other software like Voice over IP apps idling in the background, you must remember that these all use - and lock up - the DirectDraw overlay feature, meaning that no other application can initialise it while they're loaded. Unload all software that you think might use your Video overlay feature, and give Winamp Video another go.