I have run into the same problem trying to play long or short mpg files on my laptop, which has Windows 7 Professional and a Blu-ray drive. All I get is 30 seconds of audio and then just video. Slides with audio play fine, with no cutoff at 30 seconds. This is the case whether I run the PPT from the hard drive or a DVD or a USB drive. The puzzling thing is that the PPT works fine on my old XP desktop - it plays both video and audio from mpg files with no problem. I tried embedding the video but you don't seem to be able to jump out of the video to the next slide very easily. It seems sluggish, too.
Going to wmv files is not a solution for me. Life's too short to re-render all my mpg files as wmv files. There has to be a more sensible solution. Any suggestions?