I watch a great deal of anime on the train on my iPhone, it takes only minutes to set up Handbrake at night to convert what I need for the next morning and I've NEVER had a video converted by Handbrake not work on my iPhone.
You can select audio tracks, subtitle tracks (though honestly, subtitles are not the easiest thing to read on an iPhone) and customize beyond the presets for the iPhone/iTouch, though in all honesty, if you're using it for that purpose, just use the presets.