For a 1.8 LCD you need to be using MP3 Player Utilities 4.0 or 3.57, if you are using anything above 4.0 for your video the reason it is not playing is because although they have a setting for 160x120 it will actually encode to 176x128 which is to large for your player to handle.
I use 3.57 but you need to edit the TransformSetup.ini as posted here:
http://www.mympxplayer.org/full-scre...or--vt449.html