As has been said, 480x320 is the iPod touch native screen resolution. A "good" mp4 converter is probably iPhone / iPod touch aware and will have presets designed to automatically spit out a file optimised for the device without you needing to worry about resolutions and bitrate though.
Be aware that movies are usually 16:9 or even wider-screen, and 16:9 would translate to a resolution of 480x270 (with black-bars at the top and bottom when watching it on the iTouch). Similarly, many TV shows are still standard aspect-ratio 4:3, and are best viewed at about 428x320 (black-bars to the side here).
As for bitrate, once you've got the resolution right, you'll soon know what is the best compromise between file-size and picture-quality. You can get down to fairly low bitrates and it will still look quite good, but there comes a point after which even a small further reduction introduces serious blockiness, bluriness etc. If your mp4 converter allows it, rather than setting the bitrate, setting the "quantizer" (good word for Scrabble

) level is generally a better approach as it will ensure the quality remains more or less the same regardless of the video it is dealing with, by using a low bitrate for scenes where little is happening, and a much higher bitrate where there is lots of action.