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I have a basic SharePoint 2007 document library which contains a number of videos (.wmv files). This list is lives within our company's intranet and so is accessible only by authorised users.

We want our users to be able to navigate to the list and open / play the videos as per normal, but not save them locally to their machines. I already realise that this is largely impossible since the videos are actually downloaded even when you view them. So my question is:

How can I leverage an Information Management Policy to make downloading more difficult for average users to do?

Alernatively, will streaming the videos (i.e. hosting them within Windows Media Server instead of within the SharePoint doc library) prevent users from being able to save local copies?

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If you mean the out-of-the-box IRM functionality (that relies on AD RMS), it will only work with Office client applications, meaning Office file types. More info

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I think I knew that in the back of my mind but was just waiting for someone to confirm it. Alas, I will have to turn my attention to streaming the videos instead then... Cheers. –  Nick Larter Feb 23 '12 at 7:32
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Completely Prohibiting doownload of video or any other content from a website is nearly impossible. There are so many ways to actually get the files (Think of GrabIT for Youtube videos). Now most of your end users would never know how to actually download files, but you get those few special ones who know a bit more about technology. IRM would propably be your best best but I can tell you , it's expensive and difficult to implement.

Personally, I would rather present the video files to the users directly on a browser embedded media player than allowing them to browse to the Library and select the file they want to view.

I suggest you write a custom web part or XSLT to display links to the video files which would launch the selected video in the embedded browser media player on click.

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