^ just note, the highest video bitrate with the H.264 codec is 768 and the biggest resolution is 320x240, which is the exact dimensions of the iPod’s screen.
MPEG-4 video on the otherhand, supports a bitrate of 2,500 with a resolution of 480x480 pixels high - three times as many pixels than your iPod’s screen is capable of displaying.
plasticbugs.comPersonally, I'm just using nero re-encode, and I'm more than happy with the output result.