If you could link me to the file, I'll download the media (720p RMVB) and try to play it for ya and let ya know.
I've got no idea where to download RMVBs from (plus the quality is  ). I prefer MKVs (720p/1080p) and then AVIs (480p/SD).

Yes, I've tried the one bolded and highlighted in blue.
Full HD 1080p AVI movie container encoded in Xvid played smoothly without stutter but do note, I downscaled the resolution of XBMC to 720p. But I honestly don't notice the difference between 720p and 1080p on a 42". Or maybe just my eyes...

Yes, RPi is powerful enough for playing AVI-contained movies encoded in Xvid @ FHD 1080p resolution.
However, when you access the menu/OSD/on-screen display while the FHD 1080p (AVI/Xvid) movie is being played, it (movie) will stutter every 5 seconds.

The reason I downscale to HD-Ready 720p since my source is FHD 1080p is because to play FHD 1080p it's quite processor intensive towards the RPi, causing video stuttering and I hate video stuttering while accessing OSD (to seek/fast forward/rewind/subtitles/audio video settings, etc).

This is a drawback because it's only RM111 of hardware. These are some acceptable trade-offs as expected. Furthermore, I don't notice the difference between FHD 1080p and HD-Ready 720p. When your RPi is running @ HD-Ready 720p @ 60Hz, everything is smooth as butter!

Yes, the source is FHD 1080p. I'm not sure how the descaling process works but all I did was choose:
Settings, System, Video, Output resolution @ 1280X720p @ 60Hz instead of default 1920X1080p @ 60Hz.
Hope I've helped mate. This is a resolution kick-down and not so much of a video file descale.
Sorry for the confusion mate!