Larry,
If you have not already done so, make sure your original movie file is safely backed up before proceeding.
When I tried to sync it on my iPhone 3g from iTunes . . . .
One thing to try: highlight the video in iTunes and then use the Advanced menu and select Create iPod or iPhone Version.
Depending on the size of the movie, this may take a while.
I am not sure if this might affect the quality of the movie.