Some careful thinking would need to be done about where one could suggest 
transcoding to the user - as Robert noted, video sites already do transcoding. 

One possibility is to have extra, virtual entries in the file selection dialog 
for media files in an unblessed format. Selecting a virtual entry would read 
from a transcoding filter rather than the raw file.

My scenario then becomes
...
3a) User taps file input in upload form
3b) User selects virtual entry
3c) User taps "Upload" button in upload form
4) User deletes video to save space on device
5) User accesses transcoded video from file storage site; video plays

Another possibility is, when the user taps on an unblessed media in a file 
selection dialog, a subordinate dialog pops up to offer a choice between the 
unblessed format and a blessed format (it could be called a "modern" format to 
cue users that it's better). The dialog could say something like "Convert to a 
more compatible format? This will take 2 minutes and use some battery charge."
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