Thanks for the replies. I've tried your vbr settings and a cbr of 64, but the DSi won't play either. The manual says that the files need to be aac format, with m4a, mp4, or 3gp extension, with bitrates ranging from 16kbps to 320kbps, and with a sampling rate of between 32kHz and 48kHz.
Maybe it does not support HE-AAC. Nero uses HE-AAC at lower bitrates automatically, but it can be set to use only LC-AAC. However, a compliant AAC decoder is supposed to be able to play at least the LC part or HE-AAC (this compatibility mode would be of rather lower quality, but playable). Naturally, if HE-AAC is not supported it is better to set the encoder to use LC-AAC because it provides better quality than HE-AAC in the crippled compatibility mode. Here's more info about HE-AAC:
http://en.wikipedia.org/wiki/HE-AAC.
Compounding things is that MC is replacing the files in my playlists with the converted ones, then deletes the originals from the library (thankfully not from the file server). Why doesn't it add the converted files to the library instead of replacing them like any sensible program would? I'm starting to remember why I hated MC so much for so long. It's almost as balky at times as the junk from apple.
You can set MC to not update the database when it converts files. Then the orginal files will be kept in the library. If you really want to have both versions in the library (usually people don't) you can set MC to monitor the destination folder(s) and automatically import the new files.
However, you are not limited to using the standard converter. In my first reply I mentioned the Handheld feature. Personally I have set a folder on a hard drive to be the location of my virtual handheld. I use it as a small repository of converted files that I use on different devices like my MP3 cell phone and my car MP3 CD player. I can sync and maintain this virtual handheld like a HW handheld (iPod or similar).
In general, MC has a lot of options and settings (a lot more than the "Apple junk" you mentioned has). The JRiver developers have chosen reasonable default settings, but your personal preferences may differ and you may want to change some of the settings.