Good questions...
So video playback is kinda tricky for the following reasons:
a) the movies have to be in a format that the iPod can play natively (if you've synced and played it on the ipod itself, then that's almost the only way to know if this is the case)
b) if the movies have DRM (purchased from itunes store) then they can't be played in normal player (thanks alot apple for that!) but they will play in the safari version, BUT your ipod/iphone has to be authorized to play them (which usually just means you've synced some songs from the iTunes store with the ipod). (NOTE: this is the reason for the first "This item failed to play since it's not always known beforehand whether the video has DRM or not, so it has to play and then error...)
c) In testing I found that DRM tracks could be played in the embedded browser, most of the time. However, there were sometimes when it couldn't and it's again not clear why(and the information and documentation apple gives on this is ZERO).
d) Finally, for all movies/tracks with DRM from iTunes, I was always able to play them in the Safari browser, so, as a last resort, you can pick the "play in background" option if the other methods fail and it should open and play fine in Safari.
e) as an additional complication, sometimes if the bandwidth isn't sufficient, you'll get the "can't play error" because it times out
Further complicating this, of course, is the fact that there's NO WAY to test other people's DRM files (non drm files can bet tested but typically movies are big so it's hard, but Im willing to do so, if you have something that by the above guidelines *should* play)
Hope that helps some.
Also, it couldn't hurt to have the log files from both the iPhone app and the server to see if there's something fishy there.
respectively.
Thanks for reporting this, hopefully we can figure things out!
Steve