It appears that the Photo Channel can use movie data, but what exactly can it do? Also, what format of movie data can be used?

It can play back movie data on your TV screen. In addition, in version 1.1, you can extract arbitrary scenes as still images during movie playback and customize the screen by pasting them onto the Photo Channel's icon on the Wii Menu screen. (To do so, press "Post" at the moment you wish to capture a still image while a movie is being played.)

The formats that can be used are "QuickTime (Motion JPEG) format (.MOV)" and "AVI (Motion JPEG) format (.AVI)," where the screen size is up to 848x480 (pixels).