In my earlier post I wrote that Roku can decode MPEG-4 encoded files. This is only partially correct. The Roku can decode some of the MPEG-4 encoded files just fine but some other files produce heavy stuttering during panning scenes. The reason is unknown to me as of yet.
The problem files should be transcoded in to h264 using ffmpeg or Handbrake. Using ffmpeg and veryfast or ultrafast preset video can be transcoded very quickly at about 10x of real time playback rate on the Phenom x4 9750.
Most of the MPEG-4 encoded files however can be decoded on Roku without any problems as long as you convert them in to the mp4 container and re-encode the audio. The file size will be smaller when it is transcoded to the h264 but if you want to save time and for "watch once" content the MPEG-4 option is good.