I'm sure everyone knows this but I thought I would share just in case there are some that don't...
Like all of us, I want my iPhone to look cool. So I was annoyed having recently imported a load of Movies from the outstanding HandBrake, only to find the Movie thumbnails were black (iTunes having taken the first frame to establish). Anyway, I found that if you play the movie in iTunes and hold CTRL and click you will be offered to 'SET POSTER FRAME'. When you reach the frame you like simply press this option and you set the Movie Thumbnail in iTunes. Ready to be Synchronized with your beloved iPhone.
Really simple but cool none-the-less. Anyway...
Nice tip. Personally, I just add artwork (usually a downloaded DVD cover from Amazon) to the video file in iTunes or some other mp4 tagging software. This then shows up fine on the iPhone.