By default only a .wmv is considered to be a valid (uploadable) video format. To change that, go to Settings >> Advanced >> Libraries >> Videos
On there you can change the AllowedExensionsSettings
. (@Telerik that's your typo, not mine)
For instance to add MP4 support change it to: .wmv,.mp4
There aren't any restrictions to video size, only those you set on a library on which you upload the video to. And those are strictly file size limitations (Max library size and Max individual file size).
Although its a Silverlight based video player (and supports all the silverlight video formats) currently only .wmv is fully supported inside Sitefinity, meaning for an .mp4 you won't get a thumbnail in the backend. Also when selecting the video with the videoplayer widget, you'll just see a white space (since there isn't a thumbnail) but it plays perfectly.
If you've got suggestions, feel free to add them to this: A new media library thread on the suggestion forum