I changed the backend to the osso_media_can't remember the rest_ and it looks as good as Canola2 Sno
Generally, the recommendation for avi is 400x240 video, bitrates no higher than 1200 and mp3 audio bitrate of 192. This is the "mplayer" setting in tablet-encode which does a good job for most of the stuff I throw at it. While no compatibility with osso-media-player is guaranteed at this setting most stuff will play in the regular media player. The "best" setting of tablet encode which does guarantee playability in osso-media-player is the same as mplayer with a video bitrate of 768 instead of 1200.