Without belaboring this same point, I'm having the exact same issue with SWF files in my site. It used to "just work" with Flash MX 2004 (ver. 7) and DNN < ver 4.08.01 but I upgraded the DNN version to 4.08.01, the Flash file version to Flash 8, and I've since been getting the same errors with digFlash as well as without it - i.e. a lack of any "Flash" content playing. I've got a Firefox plug-in, "Download Helper", that lets me download FLV files and my site is sending the video clip, I just can't view it. Unfortunately I'm all questions and no answers; any info is appreciated!
(By the way, by "the same errors" I mean the blanking in Text/HTML, no luck replacing <p> tag with <div> tag, and no results from digFlash, although it does seem interesting.)