Hi all,
I have exactly the same problem. I watch videos by playing directly from the picture icon, and now I can't delete any videos. My iPad is now full :-(
iPad2 wifi, iOS 8.0.0 (and problem still exists now I upgraded to iOS 8.0.2)
My symptoms:
1) Videos downloaded by clicking on the cloud icon can be deleted by ( i ) swiping right in the video app and hitting delete, or (ii) in Settings > General > Usage > Manage Storage, videos appears as a category and you can delete content there.
2) Videos played by clicking the picture (i.e. watched instantly, not downloaded first, then watched), neither of the above methods work.
Some other observations:
1) If I connect my iPad to iTunes, I can see that the iPad is filled with data type "Other", not "Video" as I would expect. There is no way to alter this content via iTunes.
2) In Settings > Videos, even if I turn "Show all videos" to OFF, and then I go to Videos app, the videos I have watched recently are still visible. This indicate that they are downloaded to my iPad. They also play fine even if I turn off my Wifi. I can categorically say that the content is stored locally on my iPad. HOWEVER, they also still show the cloud download symbol next to them, which as Phil0124 says above shouldn't happen if they are downloaded.
So, to me it seems that watching by clicking on the picture is downloading the content, but not properly registering it as Video content. So then it can't be deleted.
I have logged a bug report. Couldn't fit all this detail in the report though...
Hopefully someone can help fix this!