I've just had the same problem, after a fresh install of windows vista business all swfobject flash movies stopped to work. I had this problem more then one time, also on windows xp, and yesterday I saw that a friend on his PC wouldn't see sfwobjec flash files....
I think it is not a professional solution to unistall and install flash player, because 99% of internet user are not able and don't like to work only to see a site, so probably 99% of people with this problem will go in another site .-( and they will see that flash videos in other sites works.
sfwObject has become very common use to get around the Active X issue and to help those who are not as web savvy. Although uninstalling and reinstalling Flash did fix my IE7 problem on Windows Vista, I would venture to guess that most people viewing my site will not be so comfortable in following this solution.
I don't understand why a corrupt install of Flash would work with standard embed tags, but not swfObject unless we uninstall and reinstall the plug-in. Have you been able to find a work around on your end that would not require our users to take these steps?