If a movie is converted to "8 bit Atari", does this result in 25/30 full pictures per second? Why use 50/60 pictures, the Atari only shows 25 or 30 per second?
Or are only the changes stored? Since picture #2 overrides picture #1, it would/should be possible to store only the differences between picture #2 and picture #1 in picture #2.
The player requires full frame rate (50/60) for two reasons: it has no frame repeating capability, and the audio is interleaved with the video. Repeating frames to run at a lower frame rate would require more complex audio buffering. There is a benefit to running at 50/60 even if the source material is only 24/25/30Hz: the encoder does temporal dithering, changing the dither pattern each frame. This is not feasible at lower frame rates since the flicker would be objectionable.
The stream is not delta encoded, it's all full video frames. There's no time to do that -- ANTIC is literally reading each frame straight out of the IDE port. Remember, the video runs at 509KB/sec. There's no time to do anything with the data, because it's coming in faster than the 6502 can process it.
A whole movie will indeed take an awful lot of space for conversion. 160x192 in YV12 at 59.92Hz takes 2.7MB/sec, or 165MB/min. It is possible to run pipes to avoid having to store the intermediate streams, so that everything goes through memory and all that comes out is the final video. The final output will still take 31MB/minute. But hey, now you know why video and audio compression are necessary.