Can you explain the parse files easier.
Im trying to figure this out.
Now, it can get annoying when someone types a couple paragraphs and it all ends up into one big paragraph. Thats because the BBCODE is not getting parsed! Well, go ahead and create a plugin. You should add the new plugin to the MEMBER_COMPLETE hook location. What you do is take the profile field number that you want people to be able to use BBCODE (the smileys, img tags, etc) in and replace the field number within the plugin.

is there a way to stop members from posting flash in there profiles in the video section??

That is one key element that's missing.

is it possible to have the htaccess file work from the root

like mysite.com/username ?

id be interested in this as well...

Can you make it so users can have a single line text box to enter the background URL?
So I dont have to go around changing users for them. (they are noobs so they wont know how to do it otherwise)

You could but the you would have to restrict usernames so that they can't choose ones which happen to be the same as any of you subdirectories: forums (if your forums are in /forums), gallery, etc...

The other problems you have to overcome:
The URL for the avatar and photo that get's called in the MEMBERINFO template is set as a relative URL so until you work out how to change that no avatars or photos will show.
All of the URLs called in the MEMBERINFO template are set as relative URLs so you would have to change them to be specific URLS (http://domain.com/... instead of /... )

how did you guys get http://www.site.com/forum/USERNAME to work as a link to the user profiles?

By putting the .htaccess file in your forum root.

I don't think this is possible...