A couple of years ago someone showed me a piece of software that allows you to run a video in the background on your computer (it was a Windows computer), so that you can see the video at some configurable level of transparency, on top of whatever other applications you are running at the time.
Has anyone else seen such an app, or know where to download it?
It can be done, but it takes a little work. Basically there is an API that allows this, but you need something that'll use that API - for example Autohotkey can use it with the WinSet Function
For a more specific bit of code you can use with autohotkey, from here - this will make the active window slightly transparent. Presumably you can replace the 'WinGetActiveTitle' with the specific title of your video player, and use it on full screen. I'm not sure if you can work behind it tho.
n=0 !+t:: WinGetActiveTitle, T if n=0
{ WinSet, Transparent, 222, %T% n=1
Exit } WinSet, Transparent, Off, %T%
n=0 Exit
I believe you are referring to Active Desktop. It allowed you to include web content (or video files - since they were considered "playable" by IE) in the background.
Due to security reasons, MS removed it in Vista. Look at this question for some possible replacements, or at this link - if all you want is web.
Alternatively, try playing with Windows 7 themes. If what you need is limited, you could achieve it by rapidly changing images in the background, or turning your video file into a screen saver.
