BTW: Dows this camera have zoom? I installed another camera app, and it doesn't zoom at all. And the zoom on the original camera app looks like it is just digital zoom?
Most cheap cameras (cellphone, "Flip" style video cameras, etc) have no zoom. Real zoom greatly complicates lens design, meaning you need lots more room for a lens, more elements, corrective elements to deal with chromatic abberations, all kinds of things. Easy enough, given today's CAD tools, but not likely to fit in devices of this class.
The common alternative is "digital zoom"... in short, just use some of the pixels in the center of the lens, not all of them. For digital stills, this makes very little sense, unless you need to ship off the "blowup" via photo message or something. You can always process it later for the same effect, in Photoshop or any other photo editor.
For video, it's not a bad idea... you're downrezzing the 5Mpixel image to 1/3Mpixel in normal DROID shooting. Cropping to something less won't have a huge effect on the video quality. Maybe a bit.. the downrezzing tends to eliminate some of the noise we see... for whatever reasons, the DROID camera seems noisier than one would expect these days.
I'm not sure why. This is supposedly a 1/4" Kodak sensor.. 1/4" is small, but not crazy small.. plenty of much better cameras use sensors of that size. Many cheaper consumer video cameras are down to 1/6" or 1/8" sensors, even. And Kodak makes pretty decent sensor chips, too. It might just be that they're doing the usual amount of noise-reduction image processing that you find in a modern low-end P&S camera. That's a thing to hope for, since it can be fixed.