Just an added note for anyone who is just starting with video on their Droid.
The quality of the video entirely depends on you.
Some people want the best possible quality, and use the maximum settings the Droid can handle (1500kbps for video), regardless on how big the video file is, while other people are perfectly happy with a good looking video thats less than half the filesize.
The quality also depends on your own needs. If you take your Droid on a trip, would you rather have 4 movies that are perfect, or 20 movies that are perfectly watchable.
Of course you can mix and match, put a super-quality movie on there to show off to your friends, and fill the rest up with a couple of seasons of your favorite TV show. I believe the Droid comes with 32GB of memory, I can fit 10 seasons of Friends and 6 seasons of 2 1/2 Men (total about 120 hours of video) on that in a good enough quality that its enjoyable to watch. Not perfect, but still good enough for me to watch. While for some people the quality might not be sufficient, but it all depends on your own idea of quality.
There are very few people who can tell the difference between 1000kbps and 1500kbps. There is a difference, but for me it's only noticable when I view the files on a big screen, such as a laptop. On a device such as the Droid, you have to look really close to see. The difference in filesize is about 33%, so if the 1500kbps file is 1.5GB, the 1000kbps file is 1GB. On the 32GB memory of the Droid, this basically means that you can fit 20 1500kbps movies, or 32 (12 more !) 1GB movies on it, with only a small difference. If you are comfortable with a little less quality, 800kbps will gain you another 3 movies or so.
Anyway, what I am trying to say is, find your own sweet spot of quality. Because a device can handle a certain quality setting, it does not mean you actually have to use that, you can use less, and put on more movies
Play around with a few different settings, (use the same movie to compare it though) and find your own setting.