You could also try Auto GK(Gordian Knot) to encode perfect quality AVI files from DVDs(if that is your source).
http://www.autogk.me.uk/
There are many guides on how to do this at www.videohelp.com just do a search for the Auto GK tool or search under guides.
I prefer Auto GK for DVDs to AVI(Divx or XVID) as it runs it in 2-passes and all the files it has created for me look great. You can specify the file size you want for each movie/episode and it allows subtitles as well as mp3 Variable bit rates or constant bit rates. A good start would be for every 30 minutes of video plan to use about 100-150mb for some real nice playback.
Virtualdub is excellent also and www.videohelp.com should have some guides for you there as well.
If your source is already AVI, Mpeg1, etc.. format then use virtualdub and one of the guides on videohelp.com
Good luck. Joe.