Using flash isn't a bad idea, it does stream well and compression rates can be high.
The files would be best placed on the LMS server, you'll have a predictable source location.
One problem that might occur with streamed high quality content is the size itself, many LSPs will limit the download bandwidth or the totals a user downloads. If it is say 30mins of video then this might have some users seeing their download speed falling off dramatically. You really should warn the users if there is a big download requirement in terms of file size.
Using flash isn't a bad idea, it does stream well and compression rates can be high.
The files would be best placed on the LMS server, you'll have a predictable source location.
One problem that might occur with streamed high quality content is the size itself, many LSPs will limit the download bandwidth or the totals a user downloads. If it is say 30mins of video then this might have some users seeing their download speed falling off dramatically. You really should warn the users if there is a big download requirement in terms of file size.