It's always been on my radar to retrofit one of my larger rockets to take video, and I never got around to it. One day while surfing the Interwebs looking for a fairly cheap solution that would do what I want, I found an R/C airplane forum (rcgroups.com). Apparently they have the same desire to get video, but they took it one step further. Many of them bought the then-current version of the "808" keyfob-based HD camera and made some improvement suggestions directly to the manufacturer in China. A short while later, they began producing an updated version (#11) that met all their requirements. The #16 revision is even more refined, and I bought one.
The video from it is exceptionally clear (The Youtubes degrades it somewhat for streaming purposes), and I couldn't be happier with the results. For $40 plus ~$6 for a MicroSDHC memory card, and a roll of electrical tape, you can't beat it.
Thought I'd share my success, since this thing is small enough to be strapped to just about any size rocket (ok, maybe not an Estes Mosquito).
Here's one of my flights from April: http://www.youtube.com/watch?v=-GHmXoWDgPk ... as my luck went the entire day, it found a most excellent resting point at the end -- watch and see.
The R/C airplane forum is here, with boatloads of info, samples, support info, FAQs, etc.: http://www.rcgroups.com/forums/showthread.php?t=1556994. Do beware who you buy from -- there are tons of knock-off sellers that will sell you a supposedly-720p keyfob for $8 on FleaBay, but you'll quickly find that it's using interpolated MJPEG video, and the quality is nowhere near as good. The forum link above lists the "validated/known-good" eBay sellers. I bought from "eletoponline365" and will likely buy 2 or 3 more -- he runs one of the factories, and was extremely responsive. I found one bug in the one I had, and a day later, he sent me a replacement firmware that fixed it.
One more caveat -- these are produced in China and shipped from Hong Kong. It'll take a few weeks to get to you, and there's some chance of it not working at all. Quality isn't a strong suit of these factories... the same keyfob cameras are resold by some rocketry vendors in the states (such as http://bayouratrocketry.com) -- Richard Whitney who runs that said told me he buys them in bulk, tests them all and sends back the ones that don't work. You'll pay a bit more for having one pre-tested, but that option is there.