It should. If you aren't getting it, it's because some filters are on there that are messing things up.
CCCP's included MPEG-2 decoder works pretty well. I do suggest re-routing the video through FFDSHOW (which is possible in MC's options) in order to handle De-Interlacing properly, assuming you are playing the video on a progressive-scan device like a HDTV or computer monitor. I'm not 100% clear on the proper settings for this though (AVS Forum has a very nice FFDSHOW optimization guide).
Up until recently, I'd been using Nero's decoders myself (which handle this automatically fairly well). However, I've recently switched back to my ATI/Cyberlink or Nvidia PureVideo filters for DVD playback (depending on the hardware) which with the new versions handle de-interlacing extremely well and also let you enable the hardware acceleration in the GPU (dropping CPU load a slight bit). I found that Nero wouldn't save the settings I'd set, and I wasn't sure if it was actually doing any post-processing or not when played via MC. This may be different with newer versions of the Nero Digital filters (I'm still back on v6) but it didn't seem to be working on my system...
For effectively ALL other MPEG-4 video types (DivX, XviD, 3vix, etc, etc, etc) you just need CCCP to handle playback. You don't need, and don't want to install, the "real" codec for any of those types. The only time when you need to install a "real" codec is when you want to use it to MAKE video, as opposed for playback. In that case, make sure to only install the newest versions and be careful of what you install.
So many of the codec packs out there install a bunch of crud that no one needs (like the old DivX 3.1 filters which are terrible hacked junk that breaks all kinds of stuff)... There is no reason to have those old codecs installed. FFDSHOW handles those formats just fine.