Movies playing off my wife's 5G iPod look better than most stuff coming off DirecTV (much less macro blocking) and Comcast digital cable. Not quite as good as a high-bitrate DVD, but certainly better than VHS.
"Watchable" is good for having a movie on the go with you to watch in a hotel room, etc, without hooking up your own DVD player or laptop. I wouldn't ever think of replacing my DVD player in my home theater setup with an iPod, but for what it is (video on the go) it works well.
Ok, now you are taking your apple fandom a little bit too far. Your ipod plays movies at better resolution that comcast digital cable? (not analog, digital?).
I bet your wife ipod can play music at better fidelity than a $3000 system, Displays photos better than Apple 30 inch display and also you have a bridge in brooklyn to sell us. GET OUT OF HERE!!!. That is one rad ipod. BTW, how much for the bridge?.