I didn't know this at all! I was playing with the PC Suite trying to find all the ways to back up my phone - there's a settings back up and an autobackup - and I found this option dialog box which surprised the hell out of me. Any media file you copy to your phone using the PC Suite can be automagically converted to formats the phone can understand.
Very cool. I just tried it with a small .avi and a .mov file and it worked - converting the files to .3GP. The Beatle's "Here Comes the Sun" .mp3 file killed the PC Suite all together (hehe), but Bill Withers' "Lovely Day" made it fine as a .wav file which I thought was a bit weird... why not a .3GP as well? I guess so you can use it as a ringtone?
The process wasn't particularly fast, and I wonder whether it would choke on big files instead of the 4MB files I was trying out, but it's a neat trick. Cool stuff to know.