I have encoded video with an alpha channel. The alpha channel is recognized in
Flash 8, but there is a nasty grey halo or fringe around the characters. The
characters are set on a mostly white background, so the fringe looks terrible,
it looks like a cheesy drop shadow. I am exporting from FCP and have tested
with setting the alpha channel to straight, black, and white.

Any ideas would be appreciated.

i am having the exact same problem...
dont know what to do!!!

I export my encoded videos with After Effects. I've got similar problem as
well. The fringe is usually caused when you use feather in the alpha channel. I
usually try to get the alpha channel right by just adjusting the tolerance. If
the edges are jagged I put the feather to at most 2.

If the fringe is really bad, and if the object is in motion, I add a motion
blur as well. The motion blur can hide the problems with the fringe.