Yes it includes everything from the first update. When they build a software image, they include and start with the current version. They may fix some parts of the first version, but they start with it. In layman's terms, once a new image is finalized and tested, it becomes the latest version (in this case the MR2) and is released. Your phone downloads the latest image, saves user data to a separate area, deletes the old image, loads the new image, retrieves your user data, and then boots.
Edit: This was an answer to the first question. I never had the recorded video issue and haven't followed any discussion on that, so I cannot speak for that question.