I sympathize with you, your plan makes perfect sense. Unfortunately Compressor in its current incarnation is severely crippled. I see no easy way to get Compressor to generate iPod H.264. It appears they output H.264 in mainline profile (that's what the header says) and iPod's specs say baseline only. Just for fun I changed the profile code in a file produced by Compressor. This is brute force attract that is bound to fail. See the file
http://www.sharemation.com/wg/abaselinetest.m4v?uniq=49qjfi , which is unlikely to work on iPod but who knows?
In short patience my friends, wait for Apple to upgrade Compressor, they will do it one day.
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In the meantime I honestly see little wrong with MPEG-4. It's a much quicker codec than H.264, it goes to 480X480 on iPod which will be passable when played on TV. And it works on iPod if you follow my instructions above. The only problem is size (2- 3 times larger for similar spacial quality) but that can be somewhat ameliorated by encoding at 24fps or less. This tendency to stay with 29.97 makes zero sense when coding for iPod. Transcode to 24 at least!