From my testing, it looks like if you embed a video as an attachment (inline or otherwise) the HTML <object> tag containing the video leaves blank height and width attributes, so the video will always appear in whatever size it was recorded in and won't adhere to maximum post widths or heights. In addition, I think leaving these attributes blank results in HTML that is invalid.
This appears to be because PHP's getimagesize function cannot read video files, only image files, so the array of information returns null values for height and width.
I wrote a proof of concept hack to /includes/functions_content.php to address the issue. I'm sure it can be improved. It uses another third party library you might want to use if you fix this issue. See this post: