Well, to find out whether it is your system, download a magnet link video and try to play this.
http://www.magnetmix.com/video.shtml
Click on the link and at the website choose the first video and LW should take over the download.
As for the icons, they are shown according to the file extentions and not to a realy analysis of the file. You could change the file extenion to .rar and then the file icon will be displayed as a rar file.
