I downloaded my first purchased app for my iPod touch this morning. Air Video streams videos straight to your iPhone / iPod Touch, and converts them on-the-fly. Every video I’ve tried so far streams with no problems. I used to have to convert videos with Handbreak (a pretty great program), download them to the iPod, and was then able to watch them (I can hook my iPod up to the big screen in the living room directly). Now I can just stream movies directly to the TV through my iPod. It’s totally worth the $2.99 price tag!
Alternatively, you can get the free version, which works great too, it’s just harder to browse your files.