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It wouldn't be illegal to allow plug-in support like they do for Flash currently or to dip into system APIs when available. Nearly every computer made today ships with native (and legal!) support for h.264. They don't want to because they don't believe in h.264 for moral reasons.

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That would make firefox inconsistent for different users that don't have the codec installed and it would make it look bad. Imagine passing a link to a friend that is not able to read it because of lack of codec, he'd blame it on firefox. So, that's not moral either.

It would be no different than the situation with Flash. Not supporting it at all makes the situation worse--you pass the link to a friend and there's no way to view it.

Because of IE there will be rollback support to Flash for the foreseeable future, so the likely result is that FireFox users will miss out on the benefits of the <video> tag. Stupid.

It's not the same because Flash is available for free and on all platforms. Not the case with h.264.

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