UPDATE Feb 3, 2010 – The H.264 royalty free period has been extended to 2016.
A good overview of the situation can be found here. Worth a read if you are encoding video for flash:
(I don’t know if they are affiliated with any of the organizations or license holders)
Adobe’s Q&A on the subject as it pertains to Flash. The language is a bit ominous, and this might affect any sites you work on after 2010, and possibly retroactively. The trouble is, noone knows what the license holder of H.264 has in mind, and how they will deal with vendors such as Adobe:
Wikipedia has a good overview of Flash Video technologies as well, including Sorenson and On2: