hey brendan, the movie you're encoding might be widescreen, and that's why you're not getting the full 320X240.
On another note, I encoded a full movie at 768kbps with handbrake, and it wouldn't transfer to the ipod, so I checked the info on it, and the average bitrate was 962! whew, so like someone said above, if you set it to 600kbps it turns out just right. Cool! Now I've got to encode the whole dang thing again though.
The funny thing is, with short movies, like trailers and shorts, I was able to encode at 768 and it worked just fine, but when it's with a full length movie, it needs to be set lower.
Ooh, I just checked and those shorts I ripped are indeed 894kbps for their average bit rate, so I guess if it's a shorter movie then the ipod can handle those higher settings. interesting.