The video processing has most definitely been improved. I just converted a file using a modified version of the mencoder command at the maemo wiki, dropping the framerate conversion. I changed

mencoder infile.avi -oac mp3lame -ovc lavc -lavcopts vcodec=mpeg4 -vf scale=352:208 -ffourcc DIVX -ofps 15 -o outfile.avi

to

mencoder infile.avi -oac mp3lame -ovc lavc -lavcopts vcodec=mpeg4 -vf scale=352:208 -ffourcc DIVX -o outfile.avi

The resulting file is gorgeous on the 770 and plays at full (23 fps) framerate in windowed mode. In full-screen, it starts dropping frames and looks as choppy as the file converted with the converted discussed here. I'm about to try the same experiment with a lower bitrate and see if I can retain the high framerate in fullscreen.