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Yes, Flash files can be reengineered after being downloaded. And yes, that makes it not very safe.
Just to qualify this some more.... Flash is one of the harder files to "gleen" things from. Any file you use can be re-engineered.
GooTube has been spending a lot of money trying to obscure their videos for quite some time and every time they make it harder for you to get the video someone figures it out and posts the solution and then anyone with the desire can get the video they want.
So if you are looking to hide your video files there are ways to make it harder.. but as of yet there is no way to stop it completely.
The good thing about Flash is that the quality comes back really poor if someone does try encoding it as a higher quality video file.
[edited by: Demaestro at 3:09 pm (utc) on May 31, 2007]