Maybe I am dumb, but this is what I see is hard to find. When I go to youtube, I see relatively small files which are about a minute long-- maybe 1MB or 1.5MB which are mpeg files.

We have a video camera at work which is a JVC that records in a MOI format which for about 5 seconds of video is 2MB.

I ordered a panasonic SDR-sw20 (The waterproof one) because it said it records in a mpeg2 format (which is WMP friendly). It records in MOI, then needs to be converted to mpeg2 in their software which is like a virus- and then distorts the image if played in WMP and not in their proprietary application. And the file is still like 20mb for about a minute long video. I am not looking for high quality (or extreme high quality)-- I just want some regular video which I can get wet and also send mpeg's to friends and post on youtube without being HUGE files or have to go thru an arduous process of compressing, converting, and opening multiple applications to get done--

Is there such a camera that records in mpeg that doesn't blow up an SD card or disc space?? Is there a program which does all of this? I need some help here because I am pretty ignorant regarding video and this is becoming kind of frustrating.

Am I retarded? Why is it that all the videos online are small, but all the cameras I see record in ridiculously large unfriendly formats?

What am I doing wrong here?

We have a video camera at work which is a JVC that records in a MOI format which for about 5 seconds of video is 2MB. ... I ordered a panasonic SDR-sw20 (The waterproof one) because it said it records in a mpeg2 format (which is WMP friendly). It records in MOI, then needs to be converted to mpeg2
This link should clear your confusion about MOI, MOD, MPG, MPEG-2, wrong aspect ratio, etc:

http://en.wikipedia.org/wiki/MOD_and_TOD_%28video_format%29

And the file is still like 20mb for about a minute long video. I am not looking for high quality (or extreme high quality)-- I just want some regular video which I can get wet and also send mpeg's to friends and post on youtube without being HUGE files or have to go thru an arduous process of compressing, converting, and opening multiple applications to get done
You must recompress original video if you want a smaller size. Or you can select lower quality, I believe that your camera can shoot with as low as 1.5 Mbit/s bitrate, but quality will be very bad. On the other hand, you will lose quality when converting for YouTube anyway.

Is there such a camera that records in mpeg that doesn't blow up an SD card or disc space?? Is there a program which does all of this? I need some help here because I am pretty ignorant regarding video and this is becoming kind of frustrating.
What MPEG? There are different sorts of MPEG. Look at Flip Ultra, this may be the one for you.

Am I retarded? Why is it that all the videos online are small, but all the cameras I see record in ridiculously large unfriendly formats?
Because these cameras are for making home videos, to be watched on a TV, so they provide you better quality. If all you want is to post your video on YouTube check out the Flip Ultra:

http://video.on.nytimes.com/?fr_story=71d05f5c938be70c6e84e4b5ea8dcd0e2be70830