If one uses the "divx converter" from the official divx.com, the files are changed from avi,mpg etc to .divx file extension. If one changes the file extenstion to .avi then they will work on the gp2x. Divx is the codec, avi,mpg etc is the container.
I use SUPER by eright soft to convert the movie files I have to downconvert them to 320 x 240, and then choose the option as avi (for pocket pc) as option, and all the settings are done for you. Once the convertion is completed it worked flawlessly in GP2x. BTW this product is freeware so thats another plus!.
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