Compatible with Mac users? Quicktime, make it an MP4 for highest quality.
Compatible with most end users? I suggest finding a utility that converts video into a complete Flash .swf file which includes both a player and the video. Then just install the Flash .swf into iWeb via instructions in this video tutorial.
Flash runs on 97% of the user computers out there, it's a free plugin easy to install for the 3% who don't have it, and it progressively streams the video exactly like watching a YouTube video with full controls.