This is a central feature that HTML5 videos in Firefox lacked compared to flash videos. What we’ve implemented now is a start and still rough around the edges: the only UI to get into full-screen mode is a context menu item, switching to full-screen playback isn’t as seamless as it should be, the controls haven’t been optimized for that mode, and upscaling isn’t accelerated. Nevertheless, it works.
To test this, just get the latest branch or trunk nightly and visit an open video source of your choice. I believe the biggest ones are still TinyVid, Wikimedia Commons and The Video Bay. openvideo.dailymotion.com won’t work because it prevents the user from opening a video’s context menu.