Well, the iPhone screen is 480 x 320 pixels, right?
I would encode the videos so that zoomed in, it has the native resolution of the screen. I assume that playing videos like this takes a little less CPU power, as no pixels have to be resized.
Put simply, make all your widescreen videos 320 pixels high. I say widscreen because a video with 4:3 ratio would be 427 pixels wide, i.e. less than the screen resolution. So for 4:3 movie, take the width as reference. Besides, it's so annoying to have the letterboxes on the sides
So: 4:3 -> 480 x 360
For other aspect ratios, just keep the height on 320 pixels and the width will adjust in handbrake. Don't use anamorphic encoding, we want square pixels.
H.264 at 500 kbps should be fine. Beware of the Quicktime Pro compressor, per default it tends to create not enough keyframes making fast cuts and stuff look really ugly.