Edmond, the problem isn't the file size of the videos, it is the bit rate (the number of bits per second) and the level of compression. Basically, a low-compression DVD plays back fine with your setup, but a high-compression video file that requires a lot of CPU power to decode that ends up decompressing into a high-bitrate video stream is probably just too demanding for the hardware.

Personally, I still run XP, and the YouTube videos run just fine with it even at 480p, 720p, etc. I don't usually try to view anything at 1080p or higher because my monitor's resolution is only 900p.

Then again, I spend most of my time on the same machine booted into Linux, so I am using Window XP and Windows in general less and less.

And, as for running Steam with Windows XP, it looks like that is going to end with the end of this year. It was just announced that starting January 1st, 2019, Steam will no longer be compatible with Windows XP and Windows Vista. It's too bad as XP is where I run most of my Steam apps and games. I guess this is just like years ago when I was saddened when Steam dropped support for Windows 98 and Windows ME. Otherwise Half-Life (1) would have continued to run just fine on my old computer! Alas.