The K-Lite Codec Pack is a collection of codecs and related tools. Codec is short for Compressor-decompressor. Codecs are needed for encoding and decoding (playing) audio and video. The very user-friendly installation is fully customizable, which means that you can install only those components that you want.

Installation Guide:

1) When you download K-Lite Codec Pack, please select the Basic Version.

2) Before installing the K-Lite Codec Pack Basic, please uninstall any codec packs you have installed before.

3) Please use all the default settings while installing K-Lite Codec Pack Basic.

Troubleshooting:

If you still have problems on playing video after installing the K-Lite Codec Pack, please check the configurations with the following steps:

1) Click 'Startup Menu->K-Lite Codec Pack->configuration->ffdshow video decoder'.

2) Switch to Output page, check if RGB32 is selected.

3) Switch to Directshow control page, drag the Merit bar to 'very high'.

NOTE for Win7 Users:

How to disable Microsoft dtv-dvd decoder:

Win7 forces Application to use Microsoft's own Dtv-dvd video decoder, which is built in with Win7. Since this video decoder has many issues on compatibility, we recommended you use FFDShow video decoder instead.

So if you still can not play some videos inside Magic Camera on Win7 after installing & configuring K-Lite Codec Pack. You may disable Microsoft dtv-dvd decoder by the following steps:

1) Go to 'Menu->K-Lite Codec Pack->Tools', then launch Win7DSFilterTweaker;

2) Choose "fdshow" when available, and disable all Microsoft choices.

3) Magic Camera video play will now work properly.

You can also google on 'disable Microsoft dtv-dvd decoder' to find more reference. Below is one useful link:
http://windows7news.com/2009/05/25/how-to-replace-the-microsoft-dtvdvd-decoder-in-windows-7/