Well done Shade! 
I think it's wonderful that your Grandfather wants to do Karaoke!
I also applaud your dedication and love for him. That is impressive and we're here for and with you... as your MTU Community!
Now, we need to help you with this thorny HP.
First, there is nothing wrong with the imported KMA files unless your CDR drive messed them up. KEEP EM! The problem is most likely the playback/delivery system.
Karaoke has more demands on the video and audio than one might expect. Think about it... Karaoke CDG Player "boxes" have a dedicated computer that ONLY decodes the lyrics/graphics data embeded with the audio to render it to the display. That "computer" doesn't have to contend with a thorny OS (aka Windows) that wants to sweep the floor, flush the toilet, take out the garbage, and so on... whenever it feels like it. That's why we recommend disabling some of those things Windows does automatically. Also, when the video (which has the highest demands) is using shared memory, it drains the computer by demanding resources and CPU utilization.
My first suggestion... talk him into a cheap desktop from Dell that will get you (and Gramps) out of this ancient HP laptop. As they say, you can't beat a dead horse... or squeeze blood out of a turnip... or more video cycles out of an S3 chip!
If you "want" to visit Gramps every 3 days to enjoy his company, and make him feel warm and fuzzy about his grandson (Lord knows Gramps love to do that, I've got 3 grands myself
), but sometimes it takes stepping back and saying, this horse (er... HP) ain't goin' nowhere!
Keep that "option" in mind before you spend too much money. A new computer will solve a lot of woes. Then, who knows, maybe the two of you can practice singing duets together. That should be good for some real quality time!
One other thing... we like attitude turn-arounds, and folks that come back and stand up for themselves. Makes us all smile when we see real growth in a person. Good Job!
So... my second suggestion... call Doug (919-870-0344 x201) and tell him his Dad told you we'll give Gramps a free upgrade to Hoster 3.006. You'll need to tell us who originally purchased Hoster. There is a new CDG Player library in 3.006 that just might solve your S3 problems. Heck, I'd like to know if you find it does work on the S3. My only requirement is that you post back here what the results are. If that helps with the audio dropouts, then we know it is helping to overcome the video problems just enough to make a difference.
If you only knew how much time we have fought this audio-dropout problem, like the ol' timers here have watched and helped us with (especially George)! Success with an S3 will be a real success!!!!
Ummmm... maybe I shouldn't celebrate too much until the results are in. 