640x480 will not play well, I only tried 640x352 (aka 16:9) 500 kb/s
mplayer still drops frames, but movie is viewable
Do not use xVid, it doesn't play well with mplayer, use DivX, enable B-Frames, two pass encoding
I encoded audio at 44100 128 Kbs/c MP3 or OGG
Also, make sure to encode video in landscape mode, so that you don;t have to rotate.
And yes, I had to overclock.