works better if you put a story zone directly over the start marker for the next level.
also...you CAN have videos while loading, but the videos have to load too, so unless its a super tiny video, i woulden recamend it.
anyway, how professional games do it (most of them anyway) is they have the end of the level, then it loads, then the cutscene, then the next level. and thats what putting a story zone directly over the start marker for the next level accomplishes.
[edit]
if your videos are pixalated, thats because of the resolution.
fpsc displays videos full screen, and depending what resolution you are running, the non pixilated video size varies.
if your running 1024x768...you can get a good video out of something rendered in 800x600...but if you want perfect video, you will have to render it at 1024x768 or higher.