The preferable way to handle video embeds is one of two ways:
This is really the best way as it stores all of the resource intensive files in a location away from your site. Additionally these services provide ways to better manage your video content with tools such as tagging, categorization, etc.
Depending on the audience you want for your video, this also increases the "distribution channels" your content can use to be spread around.
There two different ways you can work with embedded video on a Drupal site:
These are the most optimized methods of including video on your site. The only downside is that these services require a video format to be put in and an swf file isn't really a video format. It's a Flash format. So conversion to mp4 with an H.264 codec is best.
When it comes to converting swf files to mp4, there are a few ways you can go about this.
You can request an additional directory to be added to your site. This directory would be outside of the default sites/default/files. The downside to this is you won't be able to upload items using the Drupal uploader. You will have to connect via an SFTP/SSH client to the backend and transfer your files that way. You will also have to manually dig out the embed code needed for the player and paste it into your site's text editor.