Considering beeplayer is a compression of a compression of a compression and not offically from BBC, we should be glad to have it over nothing. I don't think the wifi quality is that bad, but seeing as how its not from BBC or T-Mobile or another carrier, I can see why the 3G quality is as unwatchable as it is. Streaming TV takes a lot of bandwidth to be decent, something no company involved is willing to pony up for just yet.
As far as uploading your own vids? I've used the rec. settings from these forums and it works great from a variety of sources. I don't see the issue here. Would I want to output it to an HDTV? No way, but thats far from the point.
The screen isn't the issue here, nor is the processor. Its the fact that there isn't dedicated software conversion with matching video app to make things optimal. You should have known this going in, its no secret. Also no secret are the specs of the Hero (you're right, it is the Magic + 2mp and Sense UI, but WE ALL KNEW THAT).
I've only had the phone for 5 days now, but have had no problem whatsoever with background apps. Horribly written ones have slowed it down, but then again, they are horrible so I'm uninstalling them anyways. The only bit of lag I notice is sometimes when switching home panes, its take a half a sec to make the transition after I swipe. Not as fluid as the iPhone. But just as many others have said here: close down all but one app/process and run an Android phone and it is as snappy as the iPhone. Its a different beast, one thats more capable and the tradeoff is a bit of speed, but seriously, you don't think its more than worth it??