First-off, sorry of the big server downtime. The damn thing went down when I was posting this story more than 12hours ago and never came back. Thanks for the tips about the story afterwards but I only received them a few minutes ago.
In any case, here we go. Microsoft has released an updated list of supported Windows Phone 7 codecs.
Of note is that MP4 will be supported in Internet Explorer to stream media and that 720p video will be encoded as MP4 is recorded as that resolution by the camera.
Also of great note to people in areas without Zune Marketplace support is that both DIVX and XVID video are supported, just like the Xbox 360, meaning alternative sources of video should work perfectly fine, up to 2000 kb/sec and 800×600 pixels at least without conversion, unlike the iPhone for example/
See the full list after the break.