As a reply to JustJoe asking to see "benefit of going from 480 to 600+ in resolution", I just uploaded 2 videos of the same source:
TestVideo-480-270-800bitrate.avi
TestVideo-640-360-800bitrate.avi

They both play correctly on my N800, I cant see any speed difference.

The scenes in this small videos are "active", and if mplayer is able to handle this video correctly, I think it should be able to handle any type of scene.(again I'm using 1 single pass, I THINK that with 2 passes the bitrate may "peak" on action scenes and cause some lag)