I got an iPhone 3 weeks ago. Thankfully my wife wanted a new phone earlier this week so I gave her my iPhone and got a Windows 7 phone instead.
Just wait until you experience the fun of trying to get an AVI file onto you iPhone. Although you can't drag n drop with this Windows 7 phone either, Zune is a hell of a better interface than iTunes and you just drag n drop into that.
Have you tried to use VLC?
That works fantastic with my iPhone4, but yes, you need to use iTunes.
In iTunes you click on "apps" and VLC and from there you can add video files.
The nice thing is that no conversion is necessary and VLC has played everything I have thrown at it.
