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Actually at 350kbps and 20fps it's quite usual for these playback hiccups to happen on the M6 (sometimes even causing audio to go out of sync). The processor/decoding algorithm is just not powerful enough.
According to the M6 specs, it should handle up to 512kbps, but that's probably a peak value, whereas your 350kbps is just a an average value that can actually go above that.
DivX and XviD have profiles that allow you to limit this, but so far I found the available profiles to be inadequate for the M6: only XviD has a profile that is restrictive enough, but then it's too restrictive and quality sucks. A while ago, I started doing some tests with the DivX VBV (video buffer verifier) option, to try and find a set of values that would guarantee seamless playback without too much quality loss, but I'm unsuccessful so far.
Bottom line: as far as I know, there is currently no guaranteed solution for the video playback problems. But if you try with lower bitrate values you might get some better results.
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