I also can confirm this bug on my IBM T42 with ATI Mobility Radeon 7500 32MB.
When I set the depth to 16 bpp I get no XVideo support.
I first noticed the problem when trying to run the game UrbanTerror which 
errors out when started with SDL errors.
When I switch back to 24 bpp, XVideo and UrbanTerror work.
For those of us with limited memory cards like mine, this can be a drastic bug.
3D game performance is slow using 24 bpp and, as mentioned earlier, virtual 
screen size is typically not adequate.
So I hope this gets some attention.
Meanwhile, I will try building the hardy ati drivers to see if the problem has 
been fixed there.
If so, I hope this would at least be a candidate for a backport if not a 
mainline update.

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radeon driver can not do xv with AIGLX enabled
https://bugs.launchpad.net/bugs/150519
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