Thought i would pass on this info incase anyone was wondering.
Ive been messing around to find the best formats for videos on the droid.
I suggest using HANDBRAKE ( which can be found out on the web for free)
Picture & Setting:
SIZE: 640x366 (for widescreen)
Framerate: same as source
SampleRate: 48, or AUTO
Add your Source Vid... then click on Browse for destination file...
Here browse to your save folder, type the file name, and ensure it says save as MP4.
Thats it... start encoding!
Ive converted 5 videos from multiple formats with these settings and they playback perfectly on the Driod from the default GALLERY app.
Note: If you try converting HiRes movies from MKV formats, you cannot use ones with DOLBY/ DTS audio, you will have to convert the audio to AAC first.
(handbrake doesnt seem to want to convert these properly)