I use the standard Media Player on my LG Nanocell TV
It plays all the modern media type, MKV and MP4 perfectly smoothly
If a file will not play I run it through Format Factory on my PC to convert to MKV with 265 compression
No visible loss of quality but file size reductions are beneficial as I have a large archive
As for the frame drops and lagging, I suggest you look at the cable you are using to connect the USB
and try a different USB. The cheap ones are not always good quality
I run my videos from a USB hdd