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Picasa can indeed deal with video files … IF you have the box checked in Tools->Options->File Types->Movies … AND your movie files are one of the supported types: .avi, .mpg, .asf, .wmv and .mov.
These video files however, will not be added to a Gift CD. Last I knew anyway, the Gift CD command only copies picture files.
Here’s the tutorial video on Gift CD in case you haven’t seen it.