I agree with you, David - not really a bug.
With that said I'm using Handbrake to create my mp4 video and then transcoding it to a properly formed m4v using an app called Subler. It works great - takes the mp4 video from Handbrake and converts to m4v with Main @ 3.1 profile. Transcoding is quick and the videos work perfectly in iBooks author.
One other thing I'd like to note -- once I've transcoded the mp4 to m4v you can use the m4v video in the media widget. If you change the m4v extension back to mp4 you can use it in an HTML widget. HTML widgets won't take the original mp4 video from Handbrake and they won't take a video with the m4v ext - has to be mp4. So changing the m4v video extension back to mp4 seems to work just fine if you want to use the videos in a HTML widget instead of the Media widget. So far this is the only way I've been able to successfully use a mp4 video in an HTML widget. All other attempts at exporting a mp4 video from Compressor, Quicktime, Adobe Prem, Final Cut, etc. all get rejected when trying to add the widget.
Message was edited by: imshapp