I realized the same problem when I tried, maybe it's just a display error (I just try it) Why don't you just try the standart HD settings with the right resolution? Then the display stays there and the only difference is that the audio is coded in 128 instead of 256 kbit (remember that it's aac not mp3 audio witch sound is far better than mp3 on the same sampling rate and you will just get a bigger file in the end with again mor processing power needed to play).
And one more thing: you don't need to have the full native resolution of the Droid, something a little bit under this is absolutely OK, you barely won't see any difference an again saving memory and processing power and therefore battery.
OK, just encoded in the standrad HD settings in the Encoder, it does make 750 bit video with 124 kbit audio (in AAC), so nothing to complain for me.
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