yes, it is codec error. One day, I tried Nikita 1st season and 1st episode, I thought it is pretty new show. Unfortunately, it threw me that error.
Later, I actually download it from the same link, it is an AVI file, and I could play it in Zune.
I saw an article from wpcentral that as long as Zune could play, WP7 should be able to play. Maybe I got it wrong.
Edit: Actually, I sync'ed it to my phone, phone could play it without any problem.
Yes our app does not play AVI indeed, I told you we use some redirections. So we are not taking the AVI, we find other files instead (this happens in the background). So idk why you ask about AVI, but ill explain why it will not work:
The wpcentral's statement is only partly true, but in this context wrong. Zune on the pc will CONVERT the AVI to a file your phone can play (I believe h264 mp4). Your phone can not natively play AVI (try f/e downloading it straight trough ie9 mobile it will not work, you will get the error message... can not play this video format). Zune runs on a pc with many more codecs so it can decode these files (and it still takes an hour to convert a film....) ours does everything real time, on the device, so we can only use supported codecs of the phone. Converting video's real time to a different codec is out of the question (if that is what you are wondering)

thats pretty much impossible, if not, too slow to be actually watchable.
Unfortunately the codecs wp7 hardware can decode is not in our hands. You will have to complain to Microsoft for not supporting it. Or to that website for using a crappy codec
Whether this show is new or not does not really matter also, it depends solely on when the video has been uploaded and when the host switched to a newer codec variant. I have found I could play videos from 2007/2008 (don't remember exactly), if you send me the link I can check it out for you and give you the exact specifications of the file Metro Browser attempts to play, so you can reference it against the WP7 supported codecs. But I'm afraid there is nothing we can do about it... thats why the error is there, it is just unsupported because your phone does not support it.
We can not guarantee that this will change anytime soon; still the majority is watchable and all new video's are encoded with the proper codecs, so there are plenty of video's and shows out there to watch still and all new episodes will be supported. However we have some ideas which we might try but they are not of a priority right now.
The main priority is getting the app out and this will happen really soon
I hope to have answered your questions regarding the limitations (we've already addressed this before), if you have any futher questions feel free to ask. Thank you for taking the time of testing our app!
Regards