ffmpeg -i input.avi -f mp4 -vcodec mpeg4 -b 1000kb \
-acodec aac -ab 192kb [-ac 2] output.mp4

“-ac 2” may not work if the input file is in mkv format with 5.1 aac audio (if you don’t convert 5.1 to 2.0, playing the file crashes your iPod/iPhone). Here’s a possible way to convert:

• Extract aac audio from the mkv file:

  ffmpeg -i input.mkv -vn -acodec copy audio.aac

• Downmix 5.1 to 2.0:

  faad -d audio.aac -o audio-2ch.wav

• Merge and convert to iPod format:

  ffmpeg -i input.mkv -i audio-2ch.wav -map 0.0:0 -map 1.0:1 -f mp4 \
  -vcodec mpeg4 -s 470x320 -b 1000kb -acodec aac -ab 192kb output.mp4

• The output of the last command gives a little more info of what I am doing here:

  Input #0, matroska, from 'input.mkv':
  Duration: 01:24:42.5, start: 0.000000, bitrate: N/A
  Stream #0.0: Video: h264, yuv420p, 704x480, 24.39 fps(r)
  Stream #0.1: Audio: aac, 48000 Hz, 5:1
  Input #1, wav, from 'audio-2ch.wav':
  Duration: 01:24:42.5, start: 0.000000, bitrate: 1536 kb/s
  Stream #1.0: Audio: pcm_s16le, 48000 Hz, stereo, 1536 kb/s
  Output #0, mp4, to 'output.mp4':
  Stream #0.0: Video: mpeg4, yuv420p, 470x320, q=2-31, 1000 kb/s, 24.39 fps(c)
  Stream #0.1: Audio: aac, 48000 Hz, stereo, 192 kb/s
  Stream mapping:
  Stream #0.0 -> #0.0
  Stream #1.0 -> #0.1

Video conversion can certainly be way fancier than what I am doing here, and faad is obviously not the best way to downmix audio from 5.1 to 2.0. You can also find quite a few iPod converters but personally I like command line. Anyway, happy converting! (ffmpeg ref)

[Also note that on MacOS, you may have to change "-acodec aac" to "-acodec libfaac".]