The type of content I’ve most enjoyed on the Touch so far is music video. I’ve filled mine about 75% with music video which I watch at work. As I have 414 separate videos, I’ve been rotating them through and one thing has become clear: compatibility is more important than quality, especially if the prime target for viewing this content is an iPod. I’ve just had a batch of MPEG4-encoded videos, all of which played on my 5th-Gen, fail to display video on playback on both the Touch and Classic. Audio is fine, just no video. I think this is because I used to push the envelope, encoding at 1500kbps MPEG4, which is the highest MPEG4 video bitrate the iPod can support, and also because I made 16:9 videos 720 x 400 pixels instead of the iPod standard of 640 x 360. Result is incompatibility or, at best, borderline compatibility.
So I’ve made the decision to make every music video iPod-compatible. It will result in lower-resolution 16:9 videos but honestly, I can’t be bothered trying to push the envelope any more. I’ve got too much on and I’ve been enjoying the iPod quality. QuickTime Player or iTunes will convert a non-DVD video between 320 and 640 pixels wide into a H.264 video with the same resolution. Handbrake 0.9’s new GUI access to the command-line parameters gives much better results. The new chaptering feature adds another reason to redo your long-form video.
So that’s my advice to you. This of course applies to any content targeted at an iPod. I still rip DVD movies and TV Shows at a much higher quality because they are aimed at Apple TV.