I've tried BSPlayer, MoboPlayer and MX Video Player. They all work pretty well and have their own quirks.
BSPlayer was the only one that could actually play 720p videos smoothly using hardware acceleration.
Oops, forgot the settings. I use Handbrake and the AppleTV 2 settings will generate a 720p file if needed that works with BSPlayer (it stutters on the other players). It's overkill for the small screen though and the file sizes are huge. Right now I just use the iPod Touch settings (h.264, 480x???)