(Dummied down for noobs like myself)
Step #1
Mac- If you're on Snow Leopard you can use Quicktime X with (iphone) setting for free, but you won't be able to customize setting to get max res for droid screen. Other programs are available to download, free or paid, that will give you more customization options. I use Quicktime 7 Pro, see screenshot.
Windows- They're converter's all over this forum.
Step #2
Encode your favorite video using the following settings...
Video
Audio
*Note: I found that occasionally it lagged a fews frames and then went back to normal. It could be the bitrate is too high...
Step #3
Copy the file to your SD card. I don't believe it matters where, the OS will scan to card when you disconnect.
Step #4
Go to Android Market and download
Video Player by Jeff Hamilton, it's really a front end for the built in media player.
Step #5
Open Video Player and select your movie, sit back and enjoy!