As with mrreality13 I too have bumped up the gpu memory to 256MB (when I was using RPi3B). this was the recommendation stated in the Kodi docs. Plays movie files well, most of my files are in H264 mkv, avi and mp4 containers/formats.
Have played a 5.4GB 1080p concert video (encoded in 5.1 audio format, but down mixed to stereo) in Kodi. No problems, plays as good as it would play on an i7 16GB ram winpc.
When I upgraded my RPi3B to RPi3B+, I lowered the gpu memory to 192MB. Still plays well. And am scheduled to watch another 2-hour batch later on
Even on a RPiZW with Kodi, (I have one as a "portable" Kodi player), still plays well even on 192MB gpu memory.
Also have a Raspbian Stretch with Desktop auto-boot to Kodi on a Raspberry Pi 1B (c) 2011, the "old" one with the yellow RCA jack.
Again with the gpu memory set at 192MB, my video files plays OK. No jitters/lags/problems.
If a "lower end" Raspberry Pi can play videos with crisp clear quality, then the higher end ones should have no problems at all if set properly.
Have not tried playing mpeg-2 formatted movie files (or maybe those are the ones that did play but outputs audio only and the screen remains black). If its was mpeg-2 encoded, I can just convert it (using a winpc) to a format that my system can play.
Tried VLC to play some videos. For me it a sort of "hit or miss" kind of situation. Kodi has been very reliable in my past 3 years of use.
Ok time to watch my 2 hour batch...
...catch you later...