That setting is not related to video playback within Photo Mechanic. It determines which application launches for video files when you ask Photo Mechanic to launch an editor.
I have never seen your described issue before. Perhaps a look at your log file might tell us something.
You can get to the log file by going to Help -> Reveal Support Data from within Photo Mechanic. Feel free to post it here, but it may contain filenames and folder paths from your computer, so send if you would prefer not to post it publicly, send it to support@camerabits.com and we can assist you from there.