Streaming Google Video on the iPhone

For example, in the MacRumors Interview video, you simply choose Video iPod/PSP from the Download popup, and the download will start and automatically launch in Apple's Video viewer on the iPhone.

Hm, I thought that someone said that the iPhone couldn't play media from the internet. Is it only streaming media that it can't play?
And of course the iPhone needs some sort of cache for Safari, I doubt that it's RAM is large enough to fit a websites full of photos AND whatever else it needs to run. I suppose the question is, when does it empty this cache...
Also I noticed that if you click on a YouTube link it opens in the YouTube app...which I thought was nice...
hey guys im lost where do you see the download link....can someone explain a little better....
thanks
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