I was told that the new-found capability of the Magic's Android software is part of the "cupcake" update to Android. The video recorder was very simple to use, and took decent video. Users can save their videos in their photo gallery, as well as organize them. Obviously, since it can record videos, it can also play them back.
This is a very welcome update to the Android software.
HTC couldn't say if or when this feature would be made available on the G1. Let's hope that is can be added via the "cupcake" update whenever it is ready for distribution.