Here's a little breakdown for you....
Smart movie has two parts. The part for the PC is the converter, the part for the phone is the player (it also has the XviD codec that you install on your phone after you install the player)
Once all of those are installed you find the video you want to convert.
You open the converter, add the file, and then tell it to convert it. It defaults to the XviD codec.
The converted file is then saved wherever you told it to be saved as a .avi file.
Move the .avi file to your phone.
start the smart movie player and have it browse for files. it will find the video and put it in your list of available videos.
Thats it. Not much else to it.
So, if you can, open up the converter, load one of your music videos, convert it using the xvid codec and we can see what happens. Where in this process do you run into errors and what is the exact error you get?
Also, how big are these music videos once you convert them? I get episodes of Lost down to 35Mb or so depending on the quality I choose. From all the issues you are having it sounds as though you aren't actually converting the files.