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I'm assuming the following things are a "bounce":
Question: If an embedded video is being watched for more than X minutes (which is above the session timeout threshold), does it count as a bounce?
Yes, watching a video for more than X minutes can institute a bounce. Especially if they don't do anything else on the page that triggers an event or a pageload.
A Bounce is described by Google as a visitor who leaves the site from the page they entered on. Meaning that they enter a site on http://www.yoursite.com/embeddedvideopage and then leave from that same page without going to another page on your site.
But you knew all that already based on your question.
You can counteract the bounce rate by using Events within the page. Here is a good reference on how to set bounces: Event Tracker Guide
I can confirm Dez's answer works. In my case, it "worked a little too well": I was using Event Tracker to fire some events as soon as the page loaded, for various business intelligence reasons. This resulted in the Bounce Rate for that page to go to zero. Disabling the event tracking resumed the Bounce Rate to typical levels. So be sure to be very careful about when you "fire events": ensure they reflect a user's interaction with your page.
