I figured out my problem. The videos were ripped using the Xvid encoder. No problem for the 3G, big problem apparently for the 3GS. I ripped a DVD using the H264 encoder and the file plays perfectly.
I'm having issues with the iPod video function. The movies I've converted for the iPhone are pixellated, blocky at the top and bottom and performing poorly in general. The same movie files on my 3g work perfectly. So far, the phone seems to be working well otherwise.
It seems like a codec issue, but I haven't heard anyone else complaining of this? They are mp4 formatted files. Anybody else experiencing this?
Let the hive mind of Engadget get that for you.
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