Yeah I had the same problem. I even tried the app Act 1 Video player and kept getting error messages.
I use Clone DVD Mobile to convert movie formats to portable devices like my iPod or PSP. I found that it also has a conversion format for the iPad. I tried it and it works great using the Act 1 Video Player. Its a work around but it works.
Clone DVD Mobile is not free but well worth the money.
Act 1 Video has a trial period version and a version you have to pay for.
I had that problem as well, I downloaded AVS video converter and its the best one out there for our situation. It gives you the optional setting to choose your android device and lets you choose the resolution as well. Great so far, I just converted 6 blu-ray movies and then moved them into my xoom and what a nice picture..