Findings:

I tried lots and lots of variations to see what would and would not work.

1) Mplayer is noticeably higher in performance than what comes with the OS. If you want the highest possible res use it. If you prefer to use what comes with the OS you'll need to crank the video rate down a notch. The problem with Mplayer is that it has no on-screen control at all. The keyboard control is nice.

2) I couldn't get anything >= 600 wide to run without dropping frames. There may be a magic size or videorate or maybe a better compression scheme but using the MP4 with Mencoder that was my limit.

3) Using 560 wide produced very nice results. You can crank up the audio resolution and still use about 896 kpbs for the video rate and it plays smoothly with mplayer. At about 700 kbps it plays smoothly with the built in video player. It looks better than 400x240,

4) The higher resolutions look great - they just don't play well. The built-in player doesn't support 800x480.

M