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After ages of searching for a good way to set a video as a screensaver, I decided simply to make one myself... Here it is.
Configurable idle timeout, video playlists, enable sound.
NOTE: This will only play AVI files.
If you want to set the program to start with windows, simply place a shortcut to the program under "Startup" in the start menu. This program is 100% portable and requires no registry or setup.
Requires .NET framework 3.0
Simply run the program. The first time you run you will need to rightclick on the taskbar icon and select settings, from there you can add some videos to play.