Some valid points, and you're right, it's their site and can do what they want.

So far though I don't think the powers that be around here have chimed on just what the rationale is for why things are as they are.

If the goal is to encourage use of the animation gallery, in my opinion that can only be hindered by having a double standard with regard to the TOS. As for format issues, as you mentioned money and programming headaches can be a limiting factor.

As for myself, the animations I make are usually small looping 24-48 frame poser animations. Much smaller than 100 mb, but usually too large to fit under the 500kb limit in the normal gallery when in the animated .gif format. For looping, animated gifs and .swf files run the smoothest, as no external video player I've seen loops without a bit of a pause. Swf file are also smaller than .gif files with higher quality/resolutions.

For my purposes, increasing the regular gallery limits to 2 megs or so (to allow larger .gifs) or allowing .swf files would work best. That's not to say that's what the site could or should do, but I would submit that there's a whole genre of animations (the short, looping variety) that is not well served by the site currently.

The strong do as they can while the weak do as they must.