If you plan to watch videos in mplayer, I've noticed that SMS/Email/notifications make mplayer go corrupted "green-screen" in certain situations. So try putting your phone in airplane mode first, and verify your clock alarms are off!

Look for details on the -lavdopts option. For higher-res videos I tend to use: -lavdopts fast=true:skiploopfilter=bidir:lores=1

Overclocking is a must for high-res video playback and mkvs.

If transcoding to a smaller size is an option, I find that for reasonably-compressed video on the phone's screen, 480x320 looks just as good as a full 800x480. For 1280x720 video, this would be 480x300. This will perform better, improve battery life, and help you save disk space!