How to play videos on ipod touch?

ok, we all know the answer to that question. what i want to know is how do you play a video with good quality i mean the 720x480 resolution is so bad the square pixels are seen. whats the point of retina display if the movie quality is that bad. i have tried everything from changing the codec to mpeg 4 to increasing the resolution to 1280x720 but nothing seems to work. itunes shows that the video format is not supported but there must be a way to view the videos in good quality. someone please help!!