The problem is seen well when you get video file information with ffmpeg:
ffmpeg -i [bad_file].avi
It will show something like:
Seems stream 0 codec frame rate differs from container frame rate: 30000.00 (30000/1) -> 25.00 (25/1) Input #0, avi, from '[bad_file].avi': Duration: 01:06:42.20, start: 0.000000, bitrate: 1466 kb/s Stream #0.0: Video: mpeg4, yuv420p, 608x320 [PAR 1:1 DAR 19:10], 25.00 tb(r) Stream #0.1: Audio: mp3, 44100 Hz, stereo, s16, 160 kb/s
The files like the above do not play at my WDTV device and re-encoding them in a normal way with Avidemux or HandBrake leads to some funny results.
To salvage files like these get HandBrake, install it and run opening a bad file or DVD.
Most important settings are in red:
My x.264 settings:
Save as template. Enjoy.
P.S. You might want to remux the resulting m4v file to mkv with mkvmerge to support rewinds in WDTV.