Packet drops caused byresidueerrors(MAC-layer errors) can severely deteriorate the wireless video quality. Prior studies have shown that this loss of quality can be circumvented by using forward error correction (FEC) to recover information from the corrupted packets. The performance of FEC encoded video streaming is critically dependent upon the choice of source and channel coding rates. In practice, the wireless channel conditions can vary significantly, thus altering the optimal rate choices. Thus, it is essential to develop an architecture which can estimate the channel capacity and utilize this estimate for rate allocation. In this paper we develop such a framework. Our contributions consist of two parts. In the first part we develop a prediction framework that leverages the received packets' signal to silence ratio (SSR) indications and MAC-layer checksum as side information to predict the operational channel capacity. In the second part, we use this prediction framework for rate allocation. The optimal rate allocation is dependent upon thechannelcapacity, the distribution of the (capacity)predictionerrorand the rate-distortion (RD) characteristics of the video source. Consequently, we propose a framework that utilizes the aforementioned statistics for RD optimal rate adaptation. We exhibit the efficacy of the proposed scheme by simulations using actual 802.11b wireless traces, an RD model for the video source and an ideal FEC model. Simulations using source RD models derived from five different popular video codecs (including H.264), show that the proposed framework provides up-to 5-dB improvements in peak signal-to-noise ratio (PSNR) when compared with conventional rate-adaptive schemes.