I'm trying to get a background material (flag) to move with the wind and whenever I render a specific frame, it's OK. But if I render as a video (xvid), it stays completely still. Any idea why this might be? Attached is the .blend file.
Sorry for the misunderstanding - you meant that the flag does not move. I thought you meant the image. It is good habit to cache all physics simulation before rendering, so the renderer has all the data needed to render the animation. Go to the Physics pane with the flag selected check 'Disk Cache' and after that hit 'Bake' in the Cloth Cache tab. After completing the caching process you can render and everything works just fine. It should look similar to the image below before rendering
I did select RGB as an output color format. Not sure why it is not selected by default, but it solved the problem for me. I can open it in the movie clip editor in Blender just fine. What software did you use to watch the rendered clip?