Ok, for me it's even weirder. I have a bunch of videos I encoded using iSquint, using H.264. SOME of them don't play on the ipod after the 2.0 upgrade. I've tried re-encoding them, and they still don't work! This makes absolutely no sense to me. It's possible that while I got the original files from the same source that they didn't all originate in the same way. When I did the original encode, I remember seeing different output in the log file for different files. So, at the moment I'm guessing that some file have something in them that changes the transcoding process. I'm currently in the process of trying to encode one of the affected files without H.264. And the answer is.... It works!!!!
Regardless, there's clearly a glitch somewhere. What really gets me is that these files will play fine in iTunes, just not on the iPod! I'm guessing that for some reason, the error can lie in the original source file. Mine were originally .avi. Perhaps this is similar to when apple tightened up their firmware checking and some people's RAM failed because it was out of spec, and Apple just hadn't been checking. Previously, playing some of these movies would occasionally crash and revert back to the home screen without warning. I wonder if it was the same ones. Maybe Apple's instituted some sanity check to make sure it's 'really' in a good format, and some stuff fails the check.
Either way, it'd sure be nice of them to tell us about it. I definitely have movies from the same set and source that ARE in H.264 and are working fine.