It's fine to me having automated ogg2flash for clients, similar to what we already do providing "adapted" images.
I don't really know how youtube and such webs internally handle videos, but i think the most important bit is not if they provide the proper "software" (being flash) but that users choose to play it and it plays. If i choose on commons to play a file, i need to wait until my browser downloads the whole file to get Videolan started.
On the other hand, if i ask videolan to open it, it can start playing it almost inmediatly, as the same program is getting and playing. It's the streaming part. A flash ogg player (what we ideally'd need, though probably deserves its own project) must be able to show as it receives, otherwise it will be "too slow". And it is able to do it as it is embedded on the browser. Optionally making the urls with another pseudo-protocol such that the browser passes the url to the target app instead of a downloaded file would also be nice, even if users had to install another app for it. (there's no need for another app, should bug the mozilla guys with this...)
Finally, my opinion of such "alternative" and "embedding options" for videos is that it must be up to the user. So we wouldn't embed into our web a java applet nor a flash player (ugh!) to show it, but give them a box "Here there's XXXX.ogg {video|sound} You can [[media:download it]], [[play it on your broser]] (needs xyz plugin) or [[play it with flash]] <sup>[[Help:flash|help]]</sup>."
The "play it" links would activate javascript in order to convert the box into the proper code to insert it (yes, we're adding another requeriment: javascript but i really doubt un-javascriptted users being able to use an activex flash plugin, they're fine with the download link). Our users are smart enough to try each of it until find one suitable for their system. And they can even install them (most of them probably won't care on what plugin they install, the internet is full of sites installing crap...).
But from the smart user, we give the user the options; our web is fast-to-download (extra stuff is on demand), and we don't ask for extra plugins (how's that plugins are required to see wikipedia?? / what has launched the java VM??).
Note 1: Yes, we still need the 'magic solution'. Note 2: I have recently found some ogg audio files made with audacity that not all ogg players correctly played (none or part of it). Any comment?