You need to use the official Divx codec that can be downloaded from http://www.divx.com. From the responses that I’ve received it seems that the problem is using anything other than the official Divx codec (either a hacked version from a Codec pack or Xvid) will cause problems with the ability to convert files for the Zune.

I’ve suggested this to multiple people who have all confirmed that the Zune software is now able to convert videos since they have installed the official codec.

This would be my first recommendation for someone who is having issues converting Divx files for play on the Zune.