Most of the software apps support Analog DVR-MS files, but none work with Digital DVR-MS files consistently that I have been able to find. I've tries all I could find, and could get a couple converted, but usually it stops or crashes.
The only sure fire way to convert all DVR-MS files, is to first convert them to MPEG and unwrap the ASF portion from them. I used DVRToolbox and the DVRMS2MPG option to extract the MPG contents and then Movie Maker, Aimersoft, etc all convert it fine. Because its not transcoding, its a very fast process (takes about 2 mins on my VMC box) but you need the space for it.
I have found a program Called Digital Media Converter that seems to handle DVRMS files correctly (including Digital), but its failing to run on my Vista X64 system saying "Windows XP SP2 is required to open this file type". I installed on my MCE2005 machine and it had converted all the files I have tried and has an iPod MPG4 mode, so it should work with your iPhone as well. Website is www.deskshare.com.