I've used Akme FFmpeg Transcoder to change the size of the files, or Pocket DivX Encoder. Both have created files that can be viewed on my 705. I change the video size to 720x408 or 720x304 with an output format of .avi so that it doesn't use h264, etc. Picture quality is fine, but I agree that volume can be low at times.
When you say that your Windows Media Player hasn't been able to find the device? Are you referring to the streaming ability of the new versions of WMP? I initially had the same issue where WMP couldn't find my device until I realized that some permissions had to be set in WMP:http://www.ehow.com/how_5216357_stream- ... layer.html
In step #3 on the page above, I set to allow all devices on my local network to read my library and from then on things worked fine.
Hope this helps a little.