When I start Two Worlds, the Two Worlds logo is shown, and the game returns to the desktop with a window titled "ActiveMovie Window" popping up. The TwoWorlds application is still running (visible in the task bar), but it is only a blank screen.
My system info according to DxDiag:
Operating System: Windows XP Professional (5.1, Build 2600) Service Pack 3 (2600.xpsp_sp3_gdr.100216-1514)
Language: English (Regional Setting: English)
System Manufacturer: MSI
System Model: MS-7519
BIOS: Default System BIOS
Processor: Intel(R) Core(TM)2 Duo CPU E8400 @ 3.00GHz (2 CPUs)
Memory: 3328MB RAM
Page File: 1219MB used, 8014MB available
Windows Dir: C:\WINDOWS
DirectX Version: DirectX 9.0c (4.09.0000.0904)
DX Setup Parameters: Not found
DxDiag Version: 5.03.2600.5512 32bit Unicode
---------------
Display Devices
---------------
Card name: NVIDIA GeForce 7600 GT
Manufacturer: NVIDIA
Chip type: GeForce 7600 GT
DAC type: Integrated RAMDAC
Device Key: Enum\PCI\VEN_10DE&DEV_0391&SUBSYS_04511462&REV_A1
Display Memory: 256.0 MB
Current Mode: 1280 x 1024 (32 bit) (60Hz)
Monitor: Plug and Play Monitor
Monitor Max Res: 1600,1200
Driver Name: nv4_disp.dll
Driver Version: 6.14.0011.9745 (English)
DDI Version: 9 (or higher)
Driver Attributes: Final Retail
Driver Date/Size: 4/4/2010 00:55:31, 6432128 bytes
WHQL Logo'd: Yes
Help :-)

Just a followup:
The video files (in the Videos folder), opens and plays perfectly with WMP 11. I assume that the required codec is then installed?
Also, if I go back to the main TwoWorlds program, and pres Esc, the menu loads, but not videos/cut scenes are displayed :-(
I have also installed the latest NVIDIA drivers, to no avail.

Do you have any unusual third party codec packs installed? If so, you might try uninstalling them, some have been known to mess with DirectShow (ActiveMovie's real name).

Thanks for the reply.
I downloaded DXMan reported a lot of audio and video codecs. I have no idea which of them to remove :-(
I was able to use WinFF to convert the video files to WMV using the WMV2 Generic preset. The quality is now much lower, but TwoWorlds can at least play them. The only problem is in each video, there are some offset problems and green/yellow bands at the bottom of the screen. :-( Very disappointing, but at least the game is playable now.

Well, you can ignore anything that lists the filename quartz.dll, wmpasf.dll, qdv.dll, qdvd.dll, qcap.dll, qedit.dll, wmm2fit.dll; all of the Indeo codecs and anything that specifically lists Microsoft or "Windows Media" in the name (all of that comes from MS). Beyond that, I'm afraid you're on your own in figuring out what extras you might have installed.