What's the best way to attach videos to toots? Since video hosting is really expensive, it seems like I probably want to avoid uploading them directly to the instance unless they're real short.

Is PeerTube the solution here? Just uploading them to YouTube? Will those embed the same way video files will?

@eldritch YouTube/Peertube would be good options (optimized for streaming and might provide quality options) and they do embed.
Note that uploading videos here (within the allowed ~50MB) is totally fine. We still have 2TB left.