You'll definitely want to get oversea hosting and look into local copyright laws for the server.. Last thing you want is a lawsuit.
If you do not host the files it is legal but you will need to keep updating all the links since they are usually deleted from host like MegaVideo...
That's not true. It depends on a variety of different circumstances and what county you are located in. Read this story on the former owner of TV Links that hosted none of it's own content, yet the owner was arrested: http://www.zeropaid.com/news/9066/tvlinks_shut_down_owner_arrested/
Yes, as the other warez sites do. They do not upload files on their site and better give away links to either rapdishare or other file sharing websites. As uploading to your own website will lead you to legal issues and you might get in trouble. You are right that there are many such websites but their servers are located in Countries which do not entertain other countries laws and these things are not considered legal there.
Problem is many of these 'countries' also don't have good bandwidth or reasonable infrastructure to support a real streaming/video site.
There might be some issues you have seen, not to name those places, but if you do some research over internet you will easily find many video websites which have server over there and you are sure to get good bandwidth and even in low prices. Oh yeah, i just remembered about a bollywood movie which was uploaded on Youtube by some of the users and even after reporting to the Youtube by movie producer, the movie was not removed. I think if someone would take some strict action then only you can get into any problem...
Without naming countries, I know exactly which you're talking about (only a handful) - again, the problem is pricing and availability. Using US/CA bw prices as a basis, there is no comparison, and ROI is low at best.