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I haven't tried this yet, but my understanding is as follows.
You need to have updated your version of CS3 and you need to be using the very latest release of the Flash plug-in. I don't know what the exact number is.
I also remember hering something about using the component and it won't show in the testing environment or something like that.
How about wrapping it in something flash actually understands, like Flash Video (.FLV).. Or use some On2 VP6 or something. I have no issues in the least with any transparency.
The point of the new codec is that you don't need to convert it to FLV. As long as it's encoded in H.264, it will play through the component or by using NetStream/NetConnection. When you enter the file as the source of the component, it will probably say "failed to load blah blah", just test your movie and it should be fine. If you're on a PC, when you browse to your file, you'll have to put '*' in so its not looking for flv. On a Mac, you'll need to type the path in manually.
Well on my mac I manually typed the path and ran it a few times with no luck. I really don't understand this. I ended up having to use a NetStream method which I didn't want to do because I had to reprogram my play, stop, replay buttons and my seek bar. Oh well, at least it's working and it really looks great.
For anyone who is interested, I found this article that explains things very in-depth, not just about the code but also about video formats if you're unfamiliar with these different codecs. Go to: http://www.adobe.com/devnet/flashplayer/articles/hd_video_flash_player.html