After some feedback from folks and good tips, I updated the resolution settings for media converter just a little bit.
640x384 resolution is now set to 13 fps. It's a bit low, I know, but it doesn't drop frames. If you want to, just edit the resolutions txt and change the rate to 14 or 15.
I added a new resolution of 480x288. It's splendid looking and runs at 18 fps without frame drops. Thus, it's a very nice balance between good looking video and smooth playback.
Also, there is a wicked 800x480 resolution for mplayer users, mainly for those videos that need to look just picture perfect.
It seems that bit rate affects the default player a bit, thus you get a bit smoother playback at 512 kbps than at 768 kbps.