$2.99 will buy you probably the best media player for the iPhone. The AVPlayer handles most video formats (DivX, XviD, MKV, AVI, WMV, H264, FLV and ASF). It supports subtitles (SMI, SRT) too and you can transfer video files via WiFi or USB connection. The app works very well on the iPhone 3GS, though depending on video resolution and codec you may need the faster processing power of the iPhone 4. The iPhone 3G is not supported.