The solution seems to be quite a simple one. I discovered that in Tools> Options> File Type, I did not have the boxes for RAW or Videos checked. Interestingly when you tick the Video box another box appears with the option to select .mov (Quicktime) files as well. I ticked all the relevant boxes and suddenly Picasa is searching all my watched folders for the missing file types, and when I connected my camera it found and downloaded the video files.
|Picasa >Tools> Options Screen Snip|