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Absolutely! You just have one video on Video 1 and the other on Video 2. You must be in timeline mode to do this, of course.
How you have them set up depends on whether you want your background "behind" your video or you want, as you said, your video to play "through a window" on your background.
Thats the bit i am having trouble understanding in timeline i only see video 1, how do i get a video 2?
Are you sure you are in Timeline mode and not in Sceneline mode????
Got it, i was in timeline but needed to expand the window to see the additional Video options, cheers