The issue with black thumbnails is probably just that the video is just black on the first frame, which is what Omeka looks at to make the thumbnail. You can configure Omeka to use a different “page” for making the thumbnail (for videos, each frame is a “page”).
As for .mpg files, your best option is probably to transcode them to a format browsers actually support (H.264 in .mp4 being generally the best choice). Browser support for older video formats like MPEG-1 and MPEG-2 has fallen off a cliff in the last few years with the demise of plugin support for many browsers.