After a few more tries (and after uninstalling and re-installing MC), I found out that it's the second pass that kills the Divx file: If I use only one conversion pass, it plays nicely, both on Windows media player and on the 770. Strangely enough, VOB files can withstand the second pass. This was all done with the final version 1.2 on Windows XP SP2 (sadly ).

I should add that I don't use mplayer on the 770, just the built in media player. I've never had any out-of-sync audio problems with it.