You guys are wrong...actually I should say Apple's specs are misleading.
I can play 640 x 360 MPEG4 video on my iPod, which should look great (near DVD quality) on a TV.
Take a look at the sample movie here-
http://forums.macrumors.com/showthread.php?p=1840025#post1840025
The standard for high-quality TV output on an iPod will be basically 10 MB per minute. This means 1.2 GB for a 2-hour movie, which is nothing for a 60GB iPod. I mean you could go higher, but given the quality of that sample there's little point. On a PSP or PDA that is too high due to cost of flash memory storage, but on a 60GB iPod it is child's play.
I think when Apple says 480 x 480, they mean total pixels. 640 x 360 (which is a typical aspect ratio for movies) is the same pixels as 480 x 480. As I said, it plays back perfectly on my iPod with no scaling artifacts, and no frame skips or signs of insufficient horsepower...that's great news!!
For newbies who want to create DVD rips like the one this guy did, I would suggest waiting a couple of weeks. It's only a matter of time before freeware/shareware programs for Mac and PC are available that will provide literally 1-click process to rip DVD movies with that level of quality...