Apparently the code on VLC is optimised to use the hardware acceleration (DSP, Video chip) of the N900 for other codecs - not just like the out of the box media player which will accelerate only MP4's. I can now play smaller H264 480p MKV files at a reasonable speed without lag or audio sync problems at default clock (600Mhz). Whereas MPlayer will require at least 900 Mhz to run it with the same sort of quality without audio syncing problems. However, remember that the program is still alpha, I have noticed some memory issues with it on larger files (100MB and over) and the indexing is flakey at this stage.

So looking forward to more development on this.. Really need a good player for our N900's..