We have fixed the problem. After days of poking and prodding and trying different stuff with no help from the developer or anyone else... We figured it out.
If your having problems with the Movies Module you should first check your php.ini settings. Most movies are alot bigger than the default settings u need to run dolphin so u must increase you max_upload_size & post_max_size. I increased mine to 5 gigs even tho 4 gigs should be plenty enough for high quality HD Movies. Most of mine are between 3 gig & 4 gig, to use my setting you want to put 5120M as your setting which are set to High Quality Audio & Video in FLV Format, avi's your looking at about the same. In addition to this I decided to change the max_execution_time & max_input_time to 1 hour which is 3600 seconds. I am not sure if you actually need to increase them, but if your script is running longer than the setting it will time out and u will get the same problems as before you changed the max upload size.