Hmmmm, here's the trick, files that worked before on my droid are now not working. I think I must have an app or something that is not playing well with my Droid.
Some people mentioned that if they play a bad video file, other files would not play anymore either, even if they played properly before. A battery-pull was a solution for these.
In other posts, I have seen people having issues with video when they overclock their Droid, or with certain custom roms. Overclocking a Droid also results in overclocking the dedicated video chip.