There are lots of player (MPlayer or vlc-player) available which can play almost all the popular video formats on iPhone. Though they are able to play movies but the quality is not up to iPhone standards. To get a good quality you are required to convert movies to iPhone compatible format.
In this category lot of paid softwares are available this gives you capability to convert all the well known formats to iPhone compatible format. I found FreeVideoToiPhoneConverter freeware which does the same. The only advantage is that it’s free of cost.

These softwares take lot of time (1/2 hr to 2 hr) for converting a movie of 800 MB to iPhone format (mp4).

MPlayer for iPhone supports mpeg4, h.264, wmv, mp3, aac, wma, real media, and t-dmb formats. It is good to have more supported movie formats for iPhone so that you don’t need to convert favorite movies to MP4 format before playing them on iPhone. To do that, you need to install MPlayer. Below are the steps to install MPlayer in iPhone
1. Make sure that yours is jailbroken iPhone as MPlayer is only available for jailbroken iPhones which have 2.0 or above firmware. So if your iPhone is having lower firmware version you need to update it to 2.0 or above.
2. Open Cydia installer app.
3. Update all the pending updates in Cydia installer.
4. Search MPlayer in search section of Cydia installer.
5. Tap on install button. It’ll install MPlayer in the iPhone
6. Connect iPhone to WinSCP and go to /private/var path
7. Look for media folder and if there is no media folder in this location then create one. This is the folder which will contain all the MPlayer’s playable files.
8. Copy movie files to /private/var/media directory.
9. Open MPlayer in iPhone. It will show you the list of all files present in above folder.
10. Tap on any file you would like to play.

MPlayer is very popular in windows. It is capable of playing mpeg4, h.264, wmv, mp3, aac, wma, real media, and t-dmb formats. This player has been ported to iPhone. Now you don’t need to convert your favorite video, audio to iPhone compatible formats e.g. mp4, mp3.
You can place any media file in /private/var/media directory and these files will be available for MPlayer.To put files in this directory, you can use WinSCP. MPlayer makes iPhone’s media capability very rich. This is must software for iPhone.
It is available in Cydia installer under ModMyI.com source.