Yes...that very well could be your problem with onboard memory of the GPU. My GPU is ATI 4800 series, with 512mb ram and I can play just about anything out there.
You could try turning Areo off and see how that works. control panel >select "appearance and personalization" / "Personalization" / between the themes, select "Windows 7 Basic">
Personally I would opt for a better GPU, with a minimum of 512mb of RAM.