Your method isn't new. It's been around for ages.
Are you sure, the DC is able to smoothly play 640x480 - movies ?!
You can go pretty high with the resolution, but I think 640x480 is overkill.
I'd rather use 320x480 or 640x240 or 352x240 for 4:3-movies for smooth playback (those resolutions are displayed FULL-SCREEN , without borders, on dreamcast)
For 16:9 movies I'd use 640xYYY, where YYY is anything, that fits your needs, but DON'T use 240 or 352 as your Y-resolution, as these resolutions are stretched to full-screen (blowing up your picture, resulting in "egg-heads")
The DC can handle pretty high-datarate streams. You can use bitrates of up to 2200 kbit/s.
The player also supports VBR (variable bit rate), and has outstanding quality (if you use 2 CD's per movie, it's not too far away from DVD), but is unfortunately illegal, due to the fact, that it is a rip of a commercial game.
Another downside is, that you don't have player-controlls (e.g. no PAUSE, REW, etc)
I just remembered, that some browsers included a SFD-player - check out the XDP-browser.
Bookmarks