> The other puzzling thing is that the device fits in the palm of your
> hand. (From the price and the lens size, we already know what kind of a
> product this is, i.e., an expensive novelty item.)

A bit more expensive than you mentioned, but this company makes some 
pretty cool small HD cameras for outdoor use:

http://www.goprocamera.com/

The video quality is pretty impressive, it's on my list.

> flash RAM, but surely full HD is going to fill that within minutes.

For 15 quid of SD card you can store 3 or 4 hours of full HD video.  And 
you can always buy more SD cards.

> The product spec also claims it stores video as H.264, which surprises
> me. I was under the impression that this requires some pretty serious
> computer power (most especially for encoding).

There are various levels of compression, I imagine a low power device is 
not using some of the more extravagant features that a desktop PC would 
use to increase the quality:bitrate ratio.

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