Yes. They have to be converted into a format that the iPod understands. It is very fussy about it too - just being in mpg format isn't enough. iTunes won't even copy anything that isn't exactly right.
Use Videora iPod Converter.
http://www.videora.com/en-us/Converter/iPod/
Use these settings...
Video
Mode: MPEG-4 > CBR
Resolution: 320 x 240
Passes: One (two makes almost no difference except doubling the time)
Bitrate: 384kbps
Framerate: Input
Audio
Bitrate: 96kbps
Channels: Stereo
Sample Rate: Input
Volume: 100%
On the profiles page, click 'New Profile', type a name for your profile, enter those settings and press apply.
On the 'Settings' page, select your profile, select an output directory and click 'Save'.
Switch to the 'Convert' tab in the left pane. In the convert page, click 'One Click Transcode', select your video and wait for it to finish. You'll find the result in the output directory you selected earlier.