Overlaying a video sequence on realtime gameplay?

Hi all Ok, I'm in the design stages for a large RPG TC game currently, with a view to working with UnrealEngine 3 when it is released (primarily because I require the seamless level loading technology). Now, as powerful as the current particle systems are, and no doubt UE3's systems will be even more advanced by the demos I've so far seen, I'm not 100% certain that some of the advanced effects I'll be needing for spells and so on will be possible. So I'm exploring other ways to do them should the need arise.

Now my question is: is it possible to overlay a video sequence from an external source (created and rendered in 3dmax for example) on top of realtime action in the game? I've seen this method used in games like Grandia 2 to good effect and would be interested in whether anyone here thinks it would work or not. Fair enough, we won't know about the capabilities of UE3 until release, but I can at least get an idea of how to proceed from UT2004

Thanks in advance.

I actually had another idea for how to get some pretty detailed effects going, but I haven't tested it yet (not sure if it's even possible). Basically it just involves creating an animation in Max and exporting that to be used as a decoration styled actor (with bones where necessary for attaching additional particle effects), then spawning that instead of an emitter.