I just found out that you can import video as a layer in photoshop. This is how I created the "When the levee breaks" GIF animation.
http://photoshopcontest.com/view-entry/176975/when-the-levee-breaks.html
First, I went to Youtube and found a video of a waterfall. Then I downloaded the video using a program called "Youtube Downloader App". Next, I opened up the video in Microsoft Movie Maker and chopped the section of video that I wanted to loop (I'm sure this step can be performed in photoshop but I was in a rush and didn't take the time to learn how). Then I used a file converter program to convert the chopped section of video into a format that photoshop recognizes. I then opened up the source image in photoshop and imported the chopped video as a layer (layer>video layer>new video layer from file). I place the video layer behind the source image layer and erased the section of the source image where I wanted the video to show through. At that point, I tried to save the animation for web and devices but found the file size was WAY too big, no matter how I played with the settings. This is due to the fact that video layers play at a 30 frame per second rate. To correct this, I went back to the original animation and, starting at the first frame, "copied merged" the entire frame and pasted it in as a new layer. I then skipped the next two frames of animation and repeated the process until the end of the animation (reducing the total number of frames in the animation). Then all I had to do was animate the copied frames in order. That did the trick, as far as file size goes, and it also helped minimize the looping effect. The original video layer was so smooth (and water movement is so hard to loop) that you could see the looping point very clearly. Dumbing down the animation by removing those extra frames (giving the animation a slight jitter) minimized the large jitter at the looping point.
I hope that made sense
