Q. What video format does the Zune support?
A. The Zune natively plays only WMV format files up to a resolution of 320x240. If you try and sync a larger resolution WMV file, the Zune interface converts it down to 320x240. Zune also supports MPEG4 video (m4v, .mp4, or .mov) and H.264 video (.m4v, .mp4, or .mov) as sync formats and will convert to them WMV. You can add support for other formats via registry edits that can be found on the Internet (search for zune dvr-ms registry).
Learn more from Paul Thurrott's "Microsoft Launches Zune HD," September 2009.