and all the extra time transcoding as well as storage for the transcoded files.. and you are making an assumption about the video working 'better' and having a smaller filesize given you don't know...
If you're using mplayer (install from application manager) most formats work. I'd suggest Divx or Xvid with width < 600 and bitrate 900kbps or less. Anything above that can be choppy. Avoid .264...