I don't think it's really fair to say the pi is underpowered for the use case for which it is intended. If you want to drive more hardware you'd obviously not use the GPIO approach, and build a break out board which could be driven by the pi. Other solutions exist, horses for courses.

Regarding the video, sounds like you're either hitting a bottleneck with the video you're trying to play, or are playing a codec the pi doesn't have hardware acceleration for. The pi should by default use its GPU to decode video. I've been using it to play back 1080p video since the first release. There are even distros specifically for using the pi as a HTPC (OSMC, ibreelec etc). If you're playing content encoded in a format not supported by the GPU (e.g. h265, Hi10P) the CPU may struggle to play it back smoothly, though IIRC OSMC have recently made improvements with h265. Either some problem like that or you don't have the licence for the codec. If you are still having problems feel free to post the output of ffmpeg -i filename here and I'll see if anything jumps out.