Yes, you can switch from camera to video underwater. First make sure the camera is set to regular picture taking mode before you put it in the housing with the sliding lever on the top of the camera(not video or playback mode). You need to have the camera set to one of the underwater modes (such as sea mode or external flash mode). On the housing, hit the "DISP" button which will toggle you through camera mode, histogram, no display, and video.
As for the flash, the instruction manuals states to set the Auto Brightness switch to ? for SeaLife cameras and ? for non-SeaLife cameras. For best results, we suggest setting the camera to Ext Flash Auto mode and select Macro Flash [by pushing the flash button once See page 21 of the DC800 instruction manual].