Well, as we all know the D3 is DivX capable. The problem is, everytime you stick a DivX movies in, the unit says "Cannot be played". This also the case for movies encoded in any other format, XviD, mkv, mpg, mpeg ect.
We also need to be able to see those videos FULL SCREEN on out units. After about 2-3 weeks of research, noone was able to provide an answer on this issue. Well, I was able to discover that Pioneer put a simple
DivX decoding profile and will not decode movies encoded with Divx 5.x or higher. Those are the steps you need to follow to have your D3 play DivX in FULL SCREEN.
A. Download and Install Magic Video Converter 8.0.2.18. There is a serial number included. http://www.sendspace.com/file/ckxl6f

B. Start the program, and select TO AVI
Before proceeding with conversion, you need to setup a few options. They only have to be setup once.

Choose your output folder, Click the little arrow next to profile, and click ADD.

Pick a name for the profile, it will be unique to your AVIC-D3.
Change Codec to DivX
Change Audio Codec to MP3

Click on VIDEO TAB and make sure to change the outlined settings !

Click on AUDIO TAB and make sure to change the outlined settings ! Click SAVE !

Add a video file and click CONVERT !
Once conversion is done, burn on DATA DVD or CD and test it out !
Works for me, I coverted hundreds of music videos !
Good Luck !