there is a way to add your movies(.avi or .mp4 etc.) to the ipod without converting it. but this will probably work for jailbroken ipods/ iphones as you need to download vlc media player and im not sure if its there in apple store but you have to download it from installous.
1.download and install vlc media player from installous
2.connect your ipod/iphone, open itunes and click on the ipod and goto "apps" tab.
3. down you will be able to see "VLC" under the filesharing column
4.click on "VLC" under apps column. you can choose any xvid files that can be played through vlc media player and then drag it to the "documents"
5.you will be able to see the progress bar on top.
6. then you are done transferring the file
now you can open vlc app on your iphone/ipod and the you will be able to see it on the menu and there you can play it...