320 x 240 is the resolution. mp4 works great. You have to take the DVD and extract the VOBs off. Then you can parse them to find the crap you want to get rid of ie. long sensless previews. Then you gotta convert it. Due to the small screen size you can compress it pretty far before the artifacting becomes apparent. Some movies will cause issues as the encryption is nuttier than others. For my daughters birthday I transcoded my coppies of Batman Begins, and Charlie and the Chocolate factory. Both look great. BM was 670MB and Charlie was 580MB.
One thing to mention is that this brings up all sorts of issues concerning copyright and all that. I have not done this with anything I have not purchased.