Video Preview of VLC for iPad
AppAdvice has been able to get its hands on the application and has posted an overview and a brief video showing it in action.
It performs very well, and all your DivX and Xvid files will play smoothly and normally, displaying all their original quality. It also supports a bunch of other formats, and it's extremely simple to use. As for the interface, it's nice and polished.
However, there are certain limitations, as less popular formats and high definition videos don't play as well. I'm confident there is still some room to improve the codecs, but since your videos are decoded at the software level, we're probably limited by the iPad's raw power. Also, it won't read Windows media files if anybody still uses them.
File management is handled directly via iTunes, and video libraries are displayed as thumbnails sitting on "shelves", offering a smooth browsing experience. The app's developers are hopeful that it could appear in the App Store as soon as next week, although it is of course subject to Apple's sometimes-unpredictable review process.
Update: Wired's Charlie Sorrel has also posted a hands-on review of VLC for iPad, noting a few performance and compatibility issues but overall finding it to be "way more polished than any other video app [he has] yet seen on the tablet".