i used to use pocketdivx becuase of its simplicity, but avidmux is much more full featured and good for making high quality videos at low file sizes.
and yes, a vote for dvd decrypter to rip.
i've had satisfactory results by halving the frame rate, resizing to 320x240, sound at 64kb/s mono, and setting vbr 2 pass encoding with final video size (not including audio) set to around 1mb per minute. (not the highest quality, but exceptable for the tiny file size!)