ok, thanks.

1. i was thinking that this was the case, based on the results i have seen, yes.
2. ah, ok - i didn't appreciate that. i found this page with php code:
http://licson.net/post/stream-videos-php/

is there a standard / recommended way to approach this with nginx?

3. i believe the problem i am encountering is that i am unable to explicitly redirect file requests for a specific path (e.g. a path i create for use with streaming videos, called 'stream') to a specific static address in the server's filestorage, because every request is being handled via a php file and there is a .php location block in the site config. so if i create a location:

location /stream/ {
internal;
root /var/www/data/;
}

and then navigate to www.mysite.tld/stream/blah.mp4

what is occuring is that the stream block is never processed and the .php block in the config is triggered instead.. i'm not 100% clear on why this is occurring.

here's a sample elgg nginx config file that is basically similar to mine:
https://gist.github.com/hellekin/755617

i have created a new thread in the forum here for this topic, since you have really helpfully addressed my original question and the topic has changed. (new thread: http://forum.nginx.org/read.php?2,251295)

i will play some more with this shortly and see if i can make any progress.
thanks for your focus. :)