Once installed, the extension will take you through a wizard that finds your installed media players and sets each file type to your preferred player. The options panel is chock full of configuration settings to customize playback choices, from adding launcher items to your context menu to automatically replacing the inline player with an icon to launch your external player—very useful so you can restart Firefox without affecting media playback.
MediaPlayerConnectivity is a free download for Firefox, but the current versions only work for Windows users—readers using Mac OS X can still download the older versions, but will probably need the Nightly Tester Tools to make them compatible. Update: Looks like it works in Ubuntu as well.