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So essentially what you can do is - download and install this package from Microsoft Website(You will need to undergo WGA) or from Softpedia(without any WGA checks). Once you have this installed, it allows you to browse and set any Video in your computer as a Screensaver.
This software is also not constrained to just playing wmv files as a screensaver in XP but I was also able to play .avi files. I guess it is using all the codecs available with your Windows Media Player.
Go ahead and beautify your Windows XP!!