Ok, I have done countless hours of random stupid testing have have concluded a couple things. First, Fairuse's standard settings will give you the best results most of the time (don't venture to far from the path). And second Xvid is better than Divx and pretty much all other codecs. I'm surprised this is even a debate among other videophiles. I'm a professional photographer, and have a very good eye for these sorts of things. Basically Xvid will exhibit far less compression artifacts and noise while retaining resolution and sharpness. I've done multiple Xvid vs. Divx tests with many different movies. and without wasting time about what exactly I did, just know that Xvid is by far, the clear winner.
      Now that I have that out of the way. Here are a couple things to remember when encoding movies. If you are going to waste your time encoding a DVD, better make it a damn good encoding.

-always auto-crop your movies. If you encode the black bars, that justs wastes more space, and doesn't let you adjust for multiple displays on XBMC as well.

-In the area that has the include sub pictures box, you can usually uncheck that, unless the movie has subtitles in it somewhere. You should always skim through the movie really fast to check for subtitles. You can do this by moving the timeline slider forward or back.

-Always have the "two-pass" box checked, and the quality meter on the encoding speed sliders set to the highest quality.

-Have the Encoding options box set to Encoding Speed (already set by default).

-And pretty much leave the audio at MP3 128kbs (whatever the default setting is). Some audiophiles will tell you there is a big difference between 128 and 160 or 192kbs...don't waste your time (or HDD space) leave it at default.

-Now for the tricky part. The video encodings box. First off, you should always set the movie's size and not use the quantizer mode. You'll notice that if you have the "show only preffered resolutions" box checked, when you add more MB to the movie, the preffered resolution changes. I primarily encode movies for my XBMC, which I display on a 42" HDTV. XBMC will upscale your movies to 720p if you have the corect HD cables for your xbox. So to get the closest to DVD encoding, you are going to need to get the resolution as close to 720 as possible. The more that XBMC has to upscale, the more sharpness it will lose. One formula that might work for you is to try to encode at 10MB per minute of movie you are encoding. So for a movie that is 90min, 90x10= 900MB. What I usually do though is get my movies to go to the resolution I think yields the best results while still giving me good file sizes, you only need to pay attention to the largest number (usually the first). For a widescreen movie (that you have auto cropped out the black bars). You should be at around 688x208 or something like that. For an anamorphic widescreen movie (one that doesn't have any black bars) You want to be around 624x333.To obtain smoother picture, add 50MB to whatever it takes to get to that resolution. So (remember we have the show prefered resolutions only box checked) try to find the lowest MB's it takes to get to the desired resolution, then add 50MB on top of that. This will smooth out alot of compression artifacts you may find in the movie. If you uncheck the "show only prefered resolutions" box, you'll notice you can get the resolution up to 704x288 or whatever the second number will be. This is closer to 720, but unnecessary and wont yield you better results than 688x288. 688xwhatever should be the highest resolution option available when you have the "show only prefered resolutions" box checked.

Thats about it. Pretty much everything you need to know to get DVD quality encodings at the smallest file sizes. Adding MB's past what I said doesn't add quality, it just wastes space. You can go lower than this and still get good quality, but you will only save a couple hundred MB's and the picture wont be quite as sharp (though still good). I've done all the sweaty hard labor for you guys. These are the correct answers to all your settings questions.

Pretty decent post Steven, but a lot of what you label as fact is really opinion.  And many of the "correct answers" are subjective.

"Xvid is better than Divx and pretty much all other codecs."

Is a prime example of where you're letting your opinion dictate what is fact.  As a professional photographer you have no more ability to declare the WINNER than I (and my credentials aren't tiny either as I'm a programmer, a videophile, and an audiophile who previously worked for 321 Studios in the QA and R&D labs) do.  While I applaud your willingness to help, I must point out that you can't provide "gospel" when it comes to subjective matter.

For instance, I have encoded many movies to both Xvid and Divx and I'd say about 20% of the time Divx maintains an edge (albeit a super small one) over Xvid; 20% of the time Xvid maintains an edge (albeit a super small one) over Divx; and the vast majority of the time there is no discernible difference between the two if they are both encoded at relatively high quality.  So what does relatively high quality equal? 

Well, in my opinion anyone watching their encodes back on a standard television set does not need to overly worry themselves with video resolution.  (strike that last sentence from the record if viewing on an HD set)  Instead of resolution, what I would focus on is the Bits/Pixel setting.  In my trials I have found that ever allowing the Bits/Pixel setting to fall below .2 results in quality that I'm simply not happy with, and encoding with a Bits/Pixel setting higher than .33 my eyes lose the ability to detect a noticeable difference.  That is to say, the footage looks the "same" to me at .33 as they do at .50 on ANY movie I've ever worked with.  Again, I'm not going to tell anyone to never exceed .33 because their eyes might detect more artifacts (ghosting, screendoor, pixels, etc.) than mine.  And in the end, they're the one that has to be satisfied with the results, not me!

All of that being said, I personally won't encode to anything less than .22 Bits/Pixel (for any movie) and I will very rarely exceed .30 Bits/Pixel (unless the movie has lots of on-screen, fast action such as LOTR: The Two Towers) for my encodes.  Ideally, I look for something between .26 - .28 Bits/Pixel and I choose whatever accompanying resolution gets me in that range -- whether it be 704x___, 688x___, or even as low as 576x___.  Why do I do this?  Because it works for ME, not because it is the "right" answer.  Are we seeing a common theme here? 

Now in response to Xvid being superior to Divx, I will say that Xvid does seem to maintain an ever so slight advantage over DivX when using large amounts of compression on "high action" movies.  Xvid seems to hide the artifacts a little bit more in that I could label a 90 minute action film in Xvid "good quality" where I am apt to only hand out a ranking of "fair" to Divx.  In the end though this is pretty useless as most of us are after more than either "good" or "fair".

You also mentioned that one should stick with audio quality of 128 kbps instead of 160 or 192.  Well, I'm one of those guys who can hear a pretty large difference between 128 and 160... although my sweet little ears don't detect much between 160 and 192.  I would never suggest that a person dismisses 192 though as their "mileage" may vary.  Perhaps their ears are more attuned than my own.  That being said, who am I to say that I have the "right" or "correct" solution.  It's all opinion based, and my usual recommendation is that people experiment for themselves to find out what works best for them.  What my eyes and ears detect won't be the same that yours or theirs do. 

Everything works out to a delicate balance between size and quality.  That being said, the only time I (this is me, personally and advice for nobody else) would elect to use 128 kbps for audio would be if I was backing up a DVD to a 650 - 700 MB file for CD storage.  If that's not in my plans (and it's rarely in MY plans) I opt for 160 as I detect a vast difference between the two audio files, and the size difference between the two options is ridiculously small for most movies.  You're talking about a difference of only 4kB per second of audio which only equates to a savings of 21 MB on a 90 minute video.  This simply is not going to have a drastic effect on your video quality unless you happen to be in a fine quality "limbo" for a particular movie already.  Truly, you'll notice better results by being sure to mark where the credits of your film begin so that you're not wasting video bandwidth to read (or press stop on your player as most of us probably don't watch the credits of our movies, especially those we have seen 10 times before) a bunch of names on a screen.

Newbs... my recommendation is not to concern yourself with tutorials for achieving the greatest results, because your opinions/tastes are inevitably much different from my own.  Only through delicate experimentation will you wind up finding what works best for YOU.  Truth be told, in spite of what you were told earlier, there is no magic "cover all blanket" for everyone.  Not only will you be more pleased by finding what settings please you most, you'll probably have a good time conducting the search.  At least for me, experimenting until I found the right "JaceMan formula" was FUN!

In closing, I am sorry to make my first so long winded, but as a person who now makes his living writing documentation and training others I tend to "run a little long in the tooth."   

In any event, I'm here to stay.

Just read thru this post and found it to be very informative nice work, regardless of each mans opinions on this subject.  It gave me a better understanding of what goes with the resolution window.

remember the original post was dated back in 2006, were now in 2008,

my opinion as is many now, is the very latest DivX is now better, although slower, does give superior results,

for the record of course, it should be said that, Xvid development stopped a long time ago, where as DivX development as still continuing,