If you mean "DVD quality" then processor speed is the least of your worries. Screen size, battery life and movies-on-SD card size are also concerns.
If you mean "watchable", then movies on your PDA boils down to a personal series of compromises that you'll need to be willing to make and live with.
I'm happy with my conversion settings because I have a ton of content that I can watch in an airport, on a train or hush a restless child with. If I wanted higher quality, I might invest in one of those portable DVD players and whip that out on the plane or train. I like movies on my PDA (Zodiac2) because it's yet another thing that my PDA can do, it's kind of geeky (geeky chicks dig it), the screen size of the Z2 is nice and wide and with the Z2's dual SD slots, I can (and do) have one slot dedicated to my 1GB SD card full of video content and still have the other slot for my 512MB card full of other stuff (games and such.)
What Kinoma and others are trying to do is to approximate the settings that we customers will accept, and to charge what they feel is appropriate for their work. Some people (like me in earlier days) are happy with the simplicity of the conversion process and can accept the outcome at that price point. What I like now, in large measure to the comments posted on this thread by wonderfully geeky individuals like myself, is the ability to customize my settings (with the huge library of open-source shareware out there, even for Mac's) and do the work myself, thereby saving that money while creating video that I'm happy watching and showing to geeky chicks.
It's a personal preference, to be sure. I only hope that everyone gets the chance to experience it in this lifetime.
Drama King.
POL9A