Yes, Picasa supports adding movies or videos to your albums. Here are the supported file formats when it comes to video playback: mpg, .mod, .mmv, .tod, .wmv, .asf, .avi, .divx, .mov, .m4v, .3gp, .3g2, .mp4, .m2t, .m2ts, .mts, .mkv.
For a more complex explanation regarding file support, use the page provided by the Picasa Support.
