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Containers are like bags: some are very limited and old (like avi), and others are new and full of different pockets, like (MP4 and mkv).I have tried .MP4 with DivX and it looks fine.
I will play a little with the settings to find the best functional quality, but the resolution was not the problem. After switching to DivX the problem was solved.
Is there any relevant difference between .MP4 and .AVI? Is there a reason to use a specific container (because of better file size or image quality)?
I'd recommended to leave the Aspect Ratios aside for the moment and concentrate on video resolution. Ace wants to have the videos on 480x320, so you can try to convert videos on that resolution. If the source videos have 4:3 or 16:9 AR, then you will have to crop some corners.I have found out that there is a problem if I convert the video to a 16:9, 480x272 format (even if all other settings are the same as 4:3, 480x320).
Download MX Player for .AVI files.