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Is there any place where I can buy or download movies?

No the market does not sell any movies.

As far as video playback, android only officially supports h264 codec in an mp4 container. It definitely does not play back any windows media files. You can playback xvid/divx using the app Rock Player, but its hit or miss.

As far as purchasing movies to download directly on the phone, I havent seen any site like that. There is the Blockbuster app, which allows you to "rent" movies for one-time playback, but that's all I've seen. However, you can certainly convert your own videos and dvd's to play back on the phone, using Handbrake for the PC. If you do a search on here for Handbrake, you will find many guides that will show you how to convert them.
 
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I've used a few torrent sites on my DHD and downloaded MP4 to it, but it was a bit of a pain for me, so would recommend the PC.

Also, I can confirm that the stock player will play MP4 & AVI formats, as I moved a bunch of family guy episodes to it and they played back fine. I'd probably go for a different media player though if I was you as it can be glitchy at times.

EDIT: Try out Vplayer Advanced, it's free and plays ALL the popular video formats

VPlayer Advanced(Video Player) - Android app on AppBrain

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I use Xilisoft and convert 720p&1080p mkv HD files to mp4 and get no lag at all. I encode at a higher bit rate and the files looks flawless and sound awesome... but then again I also have a 16gb card in my phone. A little bit of tweaking is required to get the right aspect ratio, once you know it converting more files becomes really easy.
 
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