There is a thread over at XDA-Developers that was made to address what the best combo of video encoding and playback software is for the HTC Touch HD. The maker of the thread ("Projection") created some free video encoding software that is tweaked to take advantage of the Qualcomm chipsets. Since the HD has a very similar chipset to the Diamond the software can be used to also encode videos for the Diamond.
I am finding that videos encoded with that software play well, but not completely seemless, like on an iphone.
I have started this thread to hopefully find what the best media player is (they are saying WMP), what the best CDMA Diamond ROM is, and what the best registry settings are - all with the purpose of getting the sharpest, smoothest movie playback on our Diamonds.
Here is the thread:
http://forum.xda-developers.com/showthread.php?t=467112
Here is the software:
Encoder.rar
And here you can find Registry hacks for Windows Media Player / Direct Show:
http://msdn.microsoft.com/en-us/library/aa451351.aspx
Have fun and please post your results, with what ROM you are using, what your settings were when you encoded your videos, and if you made any regedits...