so i´m not sure what the problem is.
I downloaded this .mp4 form here for testing:
http://ia311525.us.archive.org/3/ite..._Book_64kb.mp4
These are films under creative commons license: Public Domain
i click in itunes on films , than drag & drop this film into itunes.
Then i synced itunes with iphone and it works and played ...
i don´t have to click convert in itunes.
My Specs are: iTunes 7.7 under Windows Vista Ultimate
iPhone 3G 16GB with T-Mobile Contract and Jailbreak via WnPwn.
but it worked with this phone in unbreaked condition.
maybe you want to try this
Good Luck, CHris