I've never heard anyone point that out to me before (movies not working if you're rooted). While rooted, I successfully played movies through Crackle, Netflix and Google's own Play store with no problems at all. On a technical note--I'm not sure why they wouldn't work. How can any app tell that you're rooted (considering everything STILL looks locked down, even when you're rooted, unless you give an app permission to see superuser access). In any case, I didn't see any problems at all! Feel free to root and enjoy your flicks!
Also... ADB doesn't root the device, it's the fastboot that lets you install CWM... which then lets you install a superuser app (i.e. root). But yeah.. installing the CWM will blow away the user data and /sdcard data (i.e. nearly back to stock with some exceptions). You're always recommended to make a backup of stuff anyway (ala Titanium).
What did you think was wrong with the form factor?