You'll ALWAYS want to convert your stuff into H.264 MOV (MP4 / M4V) files whenever possible to avoid having to play back non-MOV (MP4 / M4V) files using the far slower and far less efficient CPU. In a lot of cases (MKV's, camera MTS'es etc), this can be done with simple remuxing - no time-consuming reencoding needed.
You might want to read the past, multimedia-related articles at
http://www.iphonelife.com/werner.ruotsalainen ; there are a lot of articles on these subjects.