VLC, the free versatile video player beloved across the world and multiple operating systems, has been updated and is now available for the iPod touch and iPhone. The iPad app was released about a month ago but it is now a universal binary which runs on the iPhone 4, 3GS and "recent iPod touches."
Videos can be added to your iOS device through iTunes. While VLC won't play every video format, it plays a lot of them without requiring specific encoding for the iOS device you are on.
The update also makes it possible to delete files within the application, meaning that you no longer have to use iTunes. The release notes also say that the decoding will be faster and more extensions are recognized.
Grab it for free from the App Store.