Honestly I think making mp4 of flv modules capable of streaming videos from a proxy source would be great. One way around we are just trying (we are streaming from S3) is to mount the S3 bucket through a FUSE filesystem and make mp4 stream it from there. There are (unfortunately) a few other problems with that, e.g. s3fs cannot fetch parts of the file (seek), it downloads the whole file, but we are on our way for a custom, read-only filesystem that does the trick.

Caching files locally is also a good option, but when you have thousands of large movies it makes it quite difficult. Direct streaming would be much nicer.

@Karolis: how exactly can you do this with lighttpd? Any reference?

Michal