FYI, that's an older, unofficial release of MPlayer, which is a bit buggy. The official version, which I find much better, is available at http://www.macupdate.com/info.php/id/18580
QuickTime Player can play mpg files, but it can't play MPEG2 video right out of the box (you need to install a special component for that, which costs money). For mpg files with MPEG2 video, MPlayer and VLC are the only free choices.
Thanks! BTW when I click on the .mpg file, OS X automatically tries to open it with Quicktime, and it can't. How can I get it to open with MPlayer by default?
That will only change the application to use for that particular file, not all files of that type. To change it for all files of the same type, Get Info on the file in the Finder (File menu), select the application you want under the "Open with" section, and then click the "Change All" button.