Strange but I've been experimenting with this in the last couple of days too on the back of a small promo I'm working on. I reckon it may be the way to go also.
Wags your video plays smoothly for me here in Thailand on my slow ADSL.
People are saying that the On2 VP6 codec is the best for Flash video at the moment.
Here's a sample made in On2's own encoder, On2 Flix standard demo (1-pass) ($39) at 260kbps, 320 x 180:
http://www.underwater-footage.com/surface-marker/
Here's a bigger sample made in On2 Flix Pro demo (2-pass) ($249) at 512kbps, 480 x 270:
http://www.bubblevision.com/flash-video-test-Dreamweaver.htm
Both those samples above use Adobe's Flash Video Player included in Dreamweaver 8 with the same skin Wagsy's used (Halo_Skin_3.swf). I don't have Flash Pro.
I prefer no border around the video and I like the controls outside the video itself. Dreamweaver doesn't offer such a skin and I was looking for a lighter-weight (quicker loading) player anyway so I made the following page with the Wimpy Wasp player ($25):
http://www.bubblevision.com/flash-video-test-wasp.htm
That's nice but it won't show the first frame of the video before you press play, which is a big drawback I think. It's supposed to display a picture of your choice but that doesn't work too.
I also tried the flv player but there's some red stuff across it for some reason and again it doesn't show the first frame of the video:
http://www.bubblevision.com/flash-video-test-flvplayer.htm
However if you can get it to work, the flvplayer has a full screen option (not implemented in my example).
If you have Flash Pro already then you can also investigate the Proxus player.
These 3rd party players make it easy to create a playlist of videos next to the player.
I'll probably end up using the Adobe player and "borrow" Flash Pro for a day or 2 to make a nice borderless, minimal skin for it.
There is also an On2 Exporter program for $199 which plugs into things like Premiere Pro and Procoder. I thought that might be best for me but the demo hangs for me in Procoder 2.
The On2 Pro codec can also be accessed as a plugin by Sorenson Squeeze for Flash (same price as On2 Flix Pro).