mp4 is so convenient, but also CPU intensive if there is no hardware acceleration for decoding.
see my other post with some test data
http://forum.attractmode.org/index.php?topic=251.msg1580#msg1580 ---
even if your system and hardware is capable of hardware video decoding (and both my mac or your rpi are) - AM is NOT USING ACCELERATION and playing video only using your CPU.
Well... at least on OS X - the same video snap (720p) plays is AM @ 60% CPU and in video player (with hardware decoding) @30%.
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Good candidate for video encoding is XviD (in AVI container). It is less cpu intensive and produces fairy small files, not that much bigger than mp4.
You can use older version of handbrake (current one is mp4 only) - .91 or .92 if I remember correctly.