As per the January 2006 Popular Science article it's as easy as 1..2...3
For Window users:
Download a file called PASV Video 9
Link
Click setup -> in settings tab choose SP/320x240/29.97fps.768kbs stereo/128kbs
On wide screen movies you'll have to pick 320x176
Click Convert -> one-click transcode and select your file
For Mac users:
Download a file called ffmpegX
Link
Choose the PSP preset as the target format
Click the video tab and change video size to 320x176
On wide screen movies you'll have to pick 320x240
Drag you file over the program window and click Encode
You final step after you converted you file is to drag the files to iTunes software
Click videos and drag it to your iPod
On iPod navigate to Video -> Movies and your done
