I first tested this theme on my own server: http://www.gomarky.com/vg_2012
Everything worked beautifully. So I exported the build and put it on the server we use for work: http://visualgoodness.com/vg2
Now when I make new portfolio items with videos, the videos show up as URLs instead of playable videos.
I re-installed the theme. I also re-installed WP 3.3.1. Nothing helps.