One of the most interesting new features is the Smooth Streaming technology (see a demo here) which dynamically detects and seamlessly switches, in real time, the video quality of a media file delivered to Silverlight based on local bandwidth and CPU conditions. This provides support for Live and on-demand true HD (720p+) streaming.
The technical overview tells the following:
IIS Smooth Streaming uses the MPEG-4 Part 14 (ISO/IEC 14496-12) file format as its disk (storage) and wire (transport) format. Specifically, the Smooth Streaming specification defines each chunk/GOP as an MPEG-4 Movie Fragment and stores it within a contiguous MP4 file for easy random access. One MP4 file is expected for each bit rate. When a client requests a specific source time segment from the IIS Web server, the server dynamically finds the appropriate Movie Fragment box within the contiguous MP4 file and sends it over the wire as a standalone file, thus ensuring full cacheability downstream. In other words, with Smooth Streaming, file chunks are created virtually upon client request, but the actual video is stored on disk as a single full-length file per encoded bit rate. This offers tremendous file-management benefits.