I strongly recommend against locking yourself into current limitations. Apple will rapidly make them obsolete and you will regret the time and effort wasted on an inferior conversion.
I have a huge library of DVDs, CDs etc which I am converting to store on an external half terrabyte USB hard drive. Ultimately this will be moved onto a larger, better drive with redundant RAID and used as a central server for all media in the house.
To this end I am RIPing material for higher quality use, using settings that are appropriate for the content, which are, after considerable testing:
AVC/ H.264 Video/ AAC Audio
Codec: AVC h.264 main using ffmpeg
Resolution: Original ie as high as possible
Frame rate: 25 fps (PAL, NTSC is crap)
Set for 2 pass with turbo first scan.
Data rate: 900 for TV or older material, 1200-1500 for near original quality
or target size of 175 mb for half hour of TV, 700 mb for 90 min film to 1200 mb for better quality 120 min film. Obviously need to increase it if the material is larger screen resolution or runs longer.
If the original material is black & white, set the grey scale encode on.
Audio: AAC 48khz / 128 kbs for speech, AAC 48khz / 160 kbs for music
Subtitles: I prefer to use the original voice rather than often poorly dubbed English, so set the RIP to English subtitles unless they used proper actors to dub.
If you have any problems RIPing a DVD, clean it very carefully with optical wipes and or use MactheRipper to extract it first, though this adds to the time to convert it.
To convert from other formats to h.264 I use ffmpegX.
Sizing: 700 mb is acceptable for most 90min or less movies, because 1 fits on a CD and 6 fit on a DVD. However a high resolution or longer movie really won't fit this, so just extrapolate up.
h.264 is absolutely clearly superior in quality/size. The only reason to use DivX or XviD is if you have a recorder that plays or creates them, but I have 2 and neither reliably plays them. I figure that now BluRay and HD-DVD and so many other technologies are supporting h.264 that this year will see regular DVD player/recorders switch to the better standard. Sony already has a few.