yes it's only for the beta, the final game will still be 16 player.
as for the videos, i think it may have to do with the compression used. i have seen every video on my HDTV and the gametrailer vids dont look nearly as good as the videos from teamxbox.
the graphical choices made for MP are never easy. look at every game out there, the MP portion doesnt look as good as the SP side of any game that does not run off of a dedicated server and allows more then 8 characters. sure while CoD2 and GoW look the same in the MP and SP, games like CoD3, GRAW 1, GRAW 2, PDZ, and others all have the graphics toned down for the MP. the less data flowing through the pipes the better it is for latency.
besides the game will look gorgeous anyways

What gives you any indication that graphics have anything to do with the amount of data necessary to send? Rendering is one thing, 16 master chiefs, grenades, etc could be a lot, but regardless of it being 640x480 or 1080p, the amount of data required to report you moving as a player across the map is the same.