HOW-TO convert your anime/movies to iPhone/iPod Touch:

This assumes XP/Vista. Takes 1:1 playback/encoding time on my C2D E6600.
In preparation:

Uninstall Microsoft Groove if you have Microsoft Office -restart
Install XviD4PSP v5.034 and be sure to include all its dependencies
Install Combined Community Codec Pack 1-24-08
It might ask about disabling Gabest splitter, agree to that. Accept all its defaults. Restart if you’re paranoid about updating shared files.

Afterwards, make the following changes to CCCP:
-disable the tray icon for FFDshow Audio decoder and FFDshow Video decoder
-disable the Haali Media Splitter tray icon
-in VSFilter configuration, General tab, I also set Loading to ‘do not load’ since I use Media Player Classic Homecinema and that loads subtitles automatically without VSFilter

The reason is during conversion, a LOT of these icons show up in the system tray as duplicate and don’t seem to disappear properly while files are encoded during batch.

Install MKVtoolnix
Grab MKVExtractGUI and unzip it to where MKVtoolnix installed–manually make a shortcut to it.

If you have MKV or OGM files with soft-subtitles (ie. ones you can toggle/switch from within the software player) use MKVExtractGui to extract out the ASS/SRT subtitle file.

Run XviD4PSP and change the Format dropdown to: MP4 iPhone or iPod Touch. This is a 1-time change as it should remember it from then on.
Open your MKV, MPG, AVI, MP4 or OGM file and let it load.
Click on Resolution/Aspect. Whatever resolution it has chosen, force the dimensions to 480x320. Be careful when you change one number, it automatically adjusts the other–ensure that it ends up with 480x320.
The aspect ratios between the source file and the output 480x320 will differ. Click the dropdown where it says “How to fix aspect difference” and choose “Black” -it will then pad out the necessary areas with black.
Click OK.
Click Subtitles, and Add your SRT/ASS file.
Use the slider to preview how it will look.
Click SAVE to add it to the batch job queue. Repeat, rinse with the rest of your files.
Click ENCODE to start jobs.

The reason I use the full 480x320 resolution is I’m not sure that the iPhone video player maintains the aspect ratio or not during playback. It didn’t seem to for a 480x272 video I had. Using the full 320 also gives you room to merge the subtitles in without obscuring the picture.

Import your resulting MP4s into iTunes or SharePod how you like.

Hope this helps someone.

XviD4PSP 4.x used to handles the subtitles and their special fonts inside anime fansub MKVs without the extra step of MKVExtract GUI but it’s no longer supported and isn’t as stable as 5.x.

For PS3/Xbox360, just leave resolution where it is originally without adjusting. If you can track down v4 of Xvid4PSP, v4.115 was the last version and supports subtitles without having to import them manually.