The Movie Player that comes with the Zaurus is nice for playing MPEG files. I can just copy a .dat file from a VCD and rename it to .mpg and Movie Player can play them in a window and full screen.
However, since space is limited on the Zaurus, (yep, 4GB is nothing if you put a few vids on it), compressing the vids is a good idea. Unfortunately, Movie Player only plays MPG files.
No worries, mplayer will do the job. mplayer can play almost any format and there are also some nice GUI interface for mplayer such as kino2 and zplayer.
Here is what I do using VirtualDub to compress videos (there is a mod of virtualdub that can open mpg files as well - VirtualDub-MPEG2 1.5.10).
From the Virtual Dub Menu:
select Video Filters... add resize New width: 320 New height: 240 Filter mode: Nearest Neighbour Color Depth... Decompression format 16-bit (HiColor/32K) Output format to compressor/display 16-bit (HiColor/32K) Compression... Microsoft MPEG-4 Video Codec V3 Configure Control: 30 Data Rate: 150 select Audio Full processing mode Compression... MPEG Layer-3 24 kBits/s,12000Hz,Stereo
Then Save as AVI.