Maybe I have misunderstood, but I do not believe this interferes with embedding at all. For example, here's a video I just embedded from Zeffer's site.

http://idiggi.blogspot.com/2007/08/x-ga ... e-out.html

As you can see, it plays fine. I think this code just prevents direct linking. If I'm wrong, hopefully someone will correct me before I put it on my own site. lol