Make your base (I'll usually use a frame from the movie I'm using, but not necessarily a frame that'll be in the animation).
Edit as you please.
to use a frame from the movie: when opening the movie in ImageReady, choose only from selected range, then slide the playbar to the frame you'd like to use and click OK. This you can then jump to Photoshop to edit.
After your frame is edited chose a location for the mini-movie. I rectangular marquee the area, click crl+c, then ctrl+n. This will give you the dimension of the area you'd like to put the movie in.
What I'll do now is create a new layer, shift+ctrl+n, and fill in the selected area. Then on the layers palette, I'll click on the layer with the base, and erase under the color block. I'll do this so that I can have a movie that's not just in a square. Like this one, To do that, I used the lasso tool, but other times I'll use the polygonal lasso tool b/c it can give you straight lines and nice slants, like this one, . Make sure the layer with the base is actually a layer, not the background, otherwise it won't work. Delete the layer on top. Jump to ImageReady.
Now you need to open the movie you’d like to use. Normally, I’ll use only a selected range, not too long or the file will be over 40k and not work on LJ and also it will be too annoying to edit..
You can crop out any extra space. This crop will affect all layers, so make sure you haven’t cut anything you need out of any of the frames.
Go to edit, transform, scale. Change the width “w” and height “h” so that they will fit in the box you’ve erased on the base. Now, this is the part where things get a little tedious. After you resize one frame, you need to click on each frame and then click ctrl+shift+t. This will repeat the same resize on every layer.
Take the base that you jumped to ImageReady and go to edit, copy merged (if you have text layers) or just copy. Paste as the top layer of the movie.
Now you need to unify the layer position. You can do this with the layer palette. Under where you’d change the opacity, click on the first button after unify. You need to do this on every layer. I’ll usually start on the top layer, and I find that’s the quickest way.
Move the base so that the movie is in correct placement with the base. Crop all around the base so that it’ll be 100x100.
Now go to 4-up. It should be at the top of the workspace, just under the main toolbar. Save one of the gif forms that is under 40k. Enjoy!