There have been good video player apps released. One was called VPlayer Pro 1.0, but it got pulled because it shared the same name as an existing VPlayer app. There are other ones out there though that are considered good.
From the android market place.
Our video player supports:
All video formats (need to choose "software decoding" mode in most cases)
Popular subtitle formats such as SRT, ASS, and SAA
Subtitles built in MKV, MPV, MOV, and others
Multi-audio streams and multi-subtitles
Playlists and continuous play on same type files
Videos streamed through HTTP, RTSP protocols
Media libraries and sort videos by type
Thumbnail displays of videos