That settles it: Mpeg4 VS H.264 experiment
480 resolution mpeg4 at 2500kbps
VS
320 resolution h.264 at 768kbps
The mpeg4 video is more than twice the file size, and at least HALF the quality of the H.264 file despite being larger resolution. When the quicktime images are scaled up on the screen and played side by side at equal sizes (about 640 width each) it is cleary obvious that the mpeg4 file, despite it's much larger file size is of far poorer quality than the H264 file.
Conclusion: use h264 for your ipod videos, it's lower in file size and superior in quality even though it has a lower bitrate and resolution, it will translate better both on your ipod and to television.