The Video Converter is designed to convert video for which there are native codecs for (i.e., Windows Media player can play them back). You can always enter an enhancement request on the maemo bugzilla (https://bugs.maemo.org) and ask for a specific different format (such as a VCD file) to be supported.

Having said all that, I think VCD is just a type of an MPEG-1 file. As DJames1 said, try renaming it to .mpg and see if that makes a difference.