What format you use is up to you. Doesn't much matter to me, although I would avoid WMV personally. M4V or MP4 is much better, as it allows video iPods and PSP's to possibly be able to display your movie. There's free software to make these formats out there.
Rephrased version of my suggestions:
1. Include anchor tags. This means that if you embed the video into a post, include a normal link to the video file in the same post as well. Trust me, it's useful to do this for a lot of reasons.
2. MIME Types: Make a text file in the directory where you decide to store your video files. Name it ".htaccess". Insert this code into it:
AddType audio/mpeg mp3
AddType audio/x-mpegurl m3u
AddType audio/x-mpegurl pls
AddType audio/ogg ogg
AddType audio/x-m4b m4b
AddType audio/x-m4a m4a
AddType video/mpg mpeg
AddType video/mpg mpg
AddType video/mp4 mp4
AddType video/m4v m4v
AddType video/quicktime mov
AddType video/x-msvideo avi
AddType video/x-msvideo wmv
If you use a host that gives you CPanel access, you should be able to set the MIME types from there. Do that instead.
3. When you use the embed tag, do everybody a favor and set autoplay="0", or use a wordpress plugin that lets you turn off autoplay.
Not really complicated stuff, just tips.