It"s so wierd that the video is so good and the pics are so bad.
It stands to reason that te optics are good.
I'm sure there will be a software fix.
Sure looks like the camera app has issues. They need work on faster autofocus and proper white balance. That SHOULD be a software issue only.. unless we're really seeing the limit of focus... hard to believe, given an actual glass lens with an actual focusing mechanism. But possible.
Some of the video samples (haven't played with it myself yet, but I'm a hardcore videohead, and certainly will) look decent. In the light, without the need for zoom, we should be getting an honest 720x480. There have been plenty of consumer DV camcorders that worked from fewer effective pixels, so there's reason to hope for pretty good video here.
I hope the camcorder and video applications have independent code for some of these things. I have played with a number of digital still cameras with video features, and they usually make the mistake of using the same autofocus algorithm for stills and for video. This is always wrong. For stills, you need to nail focus as quickly as possible, lock it, take the shot, done. For video, it's fine to nail the focus quickly, but you can't keep the rapid focus seeking behavior most DSCs will show you when not taking a photo, or the video will be messed up. The original firmware in the Panasonic DSC-TZ5 had this pretty bad... it was fixed a bit in an upgrade, but still an issue.
In fact, I kind of wonder if maybe the DROID doesn't have this inverted... using a slower-focusing algorithm intended for video on the stills. Hopefully this is something that can be addressed in an application update, and won't require an OS revision.