M4V files and ATV and iPod touch

I think I know the answer lies in file spec/size/resolution but this confused me.

When I try and transfer my M4V files ( which have been converted using Handbrake using ATV2 setting ) to the iPod touch 2nd Gen I get the message that they are in the wrong format. This makes sense if the resolution is too high in the files for the iPod touch.

However, when using the iPod touch and I go into Videos and select Shared, I can access my videos in my iTunes library on my iMac and the video list is displayed after a few moments. I select a movie which wouldn't transfer and it will play perfectly well, streamed from the iTunes library on my iMac to my iPod touch.

I would have thought if it wouldn't transfer, then it also wouldn't play ? Conversely, if it is perfectly playable streaming, why won't it transfer to the iPod touch for full 'remote' play back ?