All my vids have been <7mb and it also happens when trying to watch video feeds, i.e. from BBC news website - works ok on OS2006 - Upgrade to 2007HE and - nothing! Tried canola, mplayer etc. most of my vids work with N770, but not when I upgrade to OS2007. Much prefer the 2007 interface, but seems to be a little buggy! Can't complain as whoever develops it is doing a FAB job!! The only issue I had reall was the video playack.
p.s. thanks for the link to the article - some great info here!