In players 4.2 and 4.3 I'm finding that if you're hardware is not pretty damn good then MP4/H.264 streams from FMS3 are completely unwatchable. Even with a bit-rate of 256Mbps it's very jerky and at 1024Mbps it's like you're watching a video in slow motion. This is for both SD and HD videos, it's like there's a threshold where if your hardware's good enough it's fine but if it's not then it's useless, there's no fading of quality in-between.
This is not a bandwidth issue (all machines we've tested on are on the same LAN and ADSL connection) or a browser/operating system issue. We're using a combination of Flash 9 (latest versions) and Flash 10. I've stripped out all extra JavaScript so that I'm using as raw a version of the player as I can but it appears that the CPU load is maxed out at 100% for the duration of the video stream.
I thought it was the method of encoding the videos but I've installed another flash media player (Flowplayer) which plays the lower bit-rates absolutely fine (~60% CPU usage) and is watchable but not perfect at 1024Mbps (~80-90% CPU usage).
Even on a high-spec PC the CPU load hovers around 95%+ usage for a 512Mbps - 1024Mbps MP4/H.264 HD stream and 60-70% for a 256Mbps SD stream. However, the video plays superbly, is this a case of graphics card memory limits and not CPU? Either way, as I say, alternative players stream these formats with no problems at all.
OK, false alarm, not a bug but an idiot end user.
I didn't realise that 4.x versions of the player default to high quality (smoothing and deblocking on [http://code.jeroenwijering.com/trac/wiki/FlashVars] - whatever that means).
Setting the 'quality' flashvar to "false" has improved things a great deal, in fact it's made a massive difference. Videos now play on lower spec. machines but still with very high CPU usage. Annoyingly because of the way that Flash works, on a lower spec. PC it appears to be almost twice as efficient to watch videos at full-screen than it does at the video player's native size. Clearly Flash + MP4/H.264 is exponentially more processor intensive than Flash + FLV - leaving the default high quality setting enabled doesn't matter as FLV streaming is so efficient within Flash.
In case others stumble across this: I'd already had a fiddle with the 'quality' Flash parameter (NOT flashvar) but this didn't seem to make much difference. However, it's still worth considering when embedding any Flash application. I've now left this parameter set to 'autolow' which I think is the best compromise (http://kb.adobe.com/selfservice/viewContent.do?externalId=tn_12701&sliceId=1).