I can add some information to this now. I've tested just about every Froyo ROM out there in various forms and this seems to be a consistant issue in all of them (or at least was at the time I did these tests).
I've tested with relatively large video files now, both .WMV files and files converted from .WMV to .AVI and to .3GP, all which used to be pretty native video files in Gallery for Android. These used to work properly with 2.0.1 and 2.1... For the converted files I chose .AVI because it is so common, and .3GP because it is the file format that the Froyo video camera uses.
What now happens is with both the large .AVI and the large .3GP converted files, is about a minute after booting, Gallery goes through the file system looking for media files and encounters these. It gets hung up with them, probably either because of missing codecs or because of size... And then the Droid freezes up or heats up and goes into boot loops. I've test this a number of times now and this is the consistent result.
Native large .WMV files, which also used to work properly under 2.0.1 and 2.1, now report with the "O Cannot play video ; Sorry, this video cannot be played" message.
While I totally love FRF84B, both the Virgin version and the ROM version (and I'm going to stay with it), in my opinion Gallery is pretty unusable for watching large videos as it currently is implemented in this build. For this reason I seriously doubt if this is the last Froyo release candidate. Gallery and its video support are important enough features in Android that it's going to have to be fixed before Froyo goes out as an OTA.