For anyone that comes accross this thread in a google search, I've found a program that will do this for you.
Download a program called 'SUPER' from eRightSoft.com . It's completely free, spyware free and works very, very well. It will convert video from almost any type into any other type and allow you to change the resolutions. If you'd like to convert for iPod touch select the following:
Hope this helps someone!