I'm confused about this too. I was under the impression it would only work if you used their converter, but I forget two videos were in a folder when adding music and dragged and dropped the entire thing. (Which also means they're stored in the Sansa's music folder, which again I thought would stop them working.)
One is in .wmv format and works perfectly. The video itself is not the best quality (someone taped it off TV about 15 years ago) but it plays and it's all in synch. The other one is .avi and doesn't even show up on the players video list.
I have no idea what caused the one to work and the other to fail though, other than the format they were in.