It was just the slides that had the video. The video was recorded at 1024 x 768. But I re-scaled my Captivate project to 1024 x 672 because I have had problems with the playbar not appearing in iPad landscape mode if I use 768 as the height. In Captivate 6, wehn I re-scaled, the video was also re-scaled. But that's not happening in CP 7 for some reason. At least that's what appears to be the problem.
So here is what I've done...and it seems to work now for some reason:
1. I created a brand new CP 7 project using 1024 x 768.
2. I inserted the video.
3. I created my quiz slides and published the course.
The video plays in the window as expected. I am not convinced I really know what the problem was but tracing my resoultion settings steps and creating the project fresh in CP 7 seemed to have worked. thanks for the help.