No... It supports AVI, Quicktime, WMV, rm, Flash, and any other format you can throw at it. Some like avi can be embedded while others require the file to be downloaded and played on the stand alone player. You do need to enable embedding though.
There is a difference between inline graphics for flash, etc. and attachments. I was talking about attachments. For inline graphics they use bbcode, a good example is the flash button, if you looked at the code for that button it is using bbcode. Armed with this info, it makes it simple to use bbcode to create a Utube link, etc. These all require that the image or video be stored elsewhere while attachments are stored on your server.
Oh and one last thing, attachments may not be avaiable if you chose the easy one click install. (Not sure on this one, but heard this through the forum) But is available for advanced one click installs or self installs.
Hope this helps,