Like I said, FairUse can get it to whatever size you want. Most of the movies I've transcoded with it have been just around a gig, and I could make them smaller.

Give it a try. There's an evaluation copy.

*edit*
Oh, and all the files it makes are AVIs. You have a choice as to whether you encode it as a DiVX file or XViD. I prefer the latter.
_________________________
Matt