I've always wondered, why does the video window only display 360x240 or full 720 x 480? Why doesn't it just fit the video to what ever size the space is, like most of the other apps?
Edit: Actually it does behave this way as you make it smaller than 240... wierd.
It's probably a speed issue. Certain sizes are picked that allow showing every pixel, every other pixel, every 3rd pixel, etc. This allows the resizing algorithm to function very quickly. If the preview were to be sized to, say, 513x342, then the resizing algorithm would either have to resample to show a smooth image, or not resample and show jagged lines. The only way to retain a smooth image without resampling is to stick with certain size frames.
Note that if you switch to "simulate device aspect ratio", you'll get a slower frame rate playback than if you have this feature off. This feature does have to resample and that takes a noticeable amount of time.