I finally figured this all out. Turns out its REALLY simple.
1: You need M2 to use video. NOT TRUE. You DO need a memory card. Either SD or M2. You can watch full length movies off SD memory, or transfer it into the phone. Your choice. Phone vs MMC may affect things like answering messages or answering a call. My guess is copying to the PHONE will be better then using the MMC.
2: You need Sony Image converter 3 in order to load video. NOT TRUE.
What IS true, is that you need Image Converter. Im using I.C. 2.
1: Obtain any version of Image Converter. To be honest, ANY might not be true. I have only tested it with 2.. and obviously 3 will work. Anything previous to 2 may or may not work. The only thing I can think of as important, is the output file. So, I'm certain there are freeware apps that will do the same job. Mileage will vary. All directions assume IC2.
2: Convert some files. In IC2, your files will dump SOMEWHERE in a folder called MP_ROOT. Unfortunately, IC is ment to load to a memory device. So, you can only point it to a ROOT of a drive. Example C:MP_ROOT will be your storage folder.
3: Jump into the folder in Explorer. Notice your files names are just a bunch of numbers. You might want to rename them something more meaningful. Refrain from too much punctuation, spaces and what not. Keep it short and sweet. Its gotta fit on the phone screen afterall.
Next, Delete the files that are not .MP4.. you dont need them.
4: Get ready to copy to the phone. Put it in the cradle, plug it in power and USB. Select Mass Storage on the phone to get into drive mode.
5: In Explorer, browse to the phone folder K:\PRIVATE\AU_INOUT
K is my drive letter, yours may be different. WARNING! There are TWO drive letters that come up. Look for the drive who's size matches the memory card size!
6: Copy your videos into the folder.
7: You cant play them on the phone from here. Disconnect from the computer. On the phone hit Menu, External Memory, PC folder. You will see your files. Hit option.
At this point, decide if you want to put them on the phone, or leave them on the memory card. Use option 4 - 6 to copy or move to phone or memory.
When the location comes up, choose Data Folder, File Corresponded.
This will put it in the video folder, and link it to the system index!
8: Play it! Look in the Data folder for ether the memory card, or the phone, and you will now see EZmovie... its an easy job at this point.
9: Delete the files out of the PC folder. Save some space for the next transfer.
The same general method works for copying PDF and html documents to be viewed in Pixel.. if you want a seperate tutorial, I'll write it.. but its essentially the same.