Getting video onto the iPod video is actually relatively straightforward for smeone who is comfortable with any sort of video editing tools. The range of tools varies between whether you have a Mac or Windows computer but there are options for both.
All of the video does indeed need to be MPEG4 format and have the resolution dropped to 320 x 240. If you have QuickTime Pro, just open a file in n MoviePlayer and then export it as MPEG4 at the resolution decribed above. Then move the file to your video or movies folder and iTunes will synch the file to your iPod.
Since I'm a mac user most of the tools I'm using run on that platform.
if you're looking to transfer your DVD's to your iPod try:
http://handbrake.m0k.org/
This is an Automator Script (requires 10.4) that will build an export option into QuickTime. Once you run the installer script one time, you can just select the option in QuickTime Player (Pro required) and export the video for transfer to the iPod.
http://automatoractions.com/files/exportforipod1.0.html
On the Windows side, try:
http://www.videora.com/en-us/Converter/iPod/download.php
I've been working on taking some of my home movies and re-encoding them for the iPod lately and I've been pleasantly surprised at how they look when I play them back via the video out cable on a TV. They are actually quite watchable.
Anything you download from the iTunes store is subject to the same FairPlay restrictions as the audio files we're used to.
However you can reasonably easily create your own videos from your own content. Any tool that is able to export it's video via QuickTime to MP4 format can create content to be played on the iPod with video.
Here is a link to some video of IASW that should work on your iPod. It's a 36MB download so it might take a little bit of time.
I've also converted some files taken off of my TiVo with TiVo To Go and put those on the iPod as well which was pretty cool.
