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Download their full converter suite (one file for all programs) and it has an entire suite of free utilities (download and install on your computer, not on your Droid).
They have video/audio dubbing, YouTube to iPod and Video to iPod (converts to mp4), video to mp3, etc.
I've successfully converted avi, DivX, etc, to mp4.
Occasionally I've run into a file that says "CODEC NOT SUPPORTED". If you get this, convert using "vido to flash", then take the flash video (*.flv) and use the video to iPod and it should work now.
I have not tried to play any while docked, but it works great playing over the DROID.
To get to my mp4s, I created a directory in the SD card and access it through "FILES", "Phone files", then the directory I created for my mp4s.
I uploaded a couple of movies to my droid but cannot find how I would play them using the phone. I'm sure they probably have to be in a certain format or something like that but there seems to be no support for video files.