With the release of the Flash Player 9 Update that supports H.264, you can now play a subset of H.264 movie files. The problem is most of the H.264 files have the index at the end of the file which for progressive download means you have to download the whole file before you can start watching any of the video.
In the notes from Tinic Uro, Adobe engineer working on the changes, there is mention of a C application that helps with rearrange the innards of a movie to put the index at the beginning. Thus help with the progressive download issue
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