I use my own DVD's and then use my son's PSP program to convert them to mp4 and then transfer them to iTunes. You can buy the PSP movie converter at Target for like $29 bucks.
I know some people get free converters online but this one for the PSP is extemely easy to use, my 11 year old showed me how.
Have to second this one. Usually I don't keep many on there as I just never have the time when I am home to watch them, plus why watch them on the little iPhone screen when I have a nice HDTV to watch my movies on.
However when I do travel for work, i will load up the iPhone to keep me busy at the airport or on the plane.