Hello.
No, image recorded from Playstation Eye in 640x480 is not grayscale. It's a Bayer pattern used widely for representing images captured by CMOS sensors. You may see wikipedia for more details
http://en.wikipedia.org/wiki/Bayer_filter. Since none of widespread codecs directly support Bayer pattern, we represent one Bayer image as four grayscale images, one for each element of Bayer pattern - that are columns of video and what you call "duplication". Grayscale is used for convenience in implementation, technically it would be sufficent to write only one color channel (red, green or blue) for each sub-image.
In 320x240 mode Playstation Eye delivers images in more common YUV format, which is internally reencoded to I420 video format which is widely supported. That is why you can see normal colorful video in WMP.
Incidentally, version 2.0 will introduce a new special video file format. It allows for less disk space consumption, more optimal rendering, and storing additional information for use by iPi Studio. AVI will not be used for recording mocap videos, so you won't have such questions anymore: it will only be possible to play recorded videos using our software.
